U.S. Vows to Expand Insider Trading Probe as Fourth Ring Charged

U.S. Vows to Expand Insider Trading Probe as Fourth Ring Charged

The U.S. government vowed to continue its five-year investigation into insider trading on Wall Street as it charged a fourth ring of hedge-fund traders with using illegal information to make millions of dollars.

Seven analysts and portfolio managers were accused of securities fraud in the latest sweep, the Justice Department said yesterday. The charges included the first current employee of Steven Cohen’s $14 billion SAC Capital Advisors LP to be caught up in the probe, and the highest-profile manager to be arrested since Raj Rajaratnam was indicted in October 2009.

“Each wave of charges and arrests seems to produce leads that lead us to the next phase,” Janice Fedarcyk, assistant director at the Federal Bureau of Investigation, said yesterday at a news conference in New York. “This initiative is far from over.”

Anthony Chiasson, 38, who co-founded Level Global Investors LP with David Ganek in 2003, was among those taken into custody. He helped build New York-based Level Global into a $4 billion firm before shutting it down last February because of the probe. Chiasson and others at the fund made $57 million on illegal trades on Dell Inc. (DELL) and the alleged scheme netted $61.8 million altogether, according to complaint. That’s almost as much as Rajaratnam, who ran Galleon Group LLC and is now serving 11 years in prison for insider trading after being found guilty in May.

Attorney Comments
“Anthony Chiasson categorically denies having done anything improper over the course of his 16-year career in the securities industry and intends to vigorously contest these baseless charges in court,” said his attorney, Gregory Morvillo of Morvillo Abramowitz in New York, in an e-mailed statement. “He is looking forward to being vindicated at trial.”

The government also arrested Jon Horvath, a technology analyst at SAC Capital’s Sigma Capital Management unit. Horvath, 42, allegedly traded on inside information provided by an employee of Dell while working at SAC, according to the complaint.

“Throughout a more than 10-year career as a respected investment analyst, Jon Horvath has conducted himself with honesty and integrity,” Horvath’s lawyer, Steven Peikin, said after a court appearance yesterday. “He has done nothing wrong, and the charges brought against him today will be shown to be meritless.”

While at least four other investment professionals, including Chiasson, charged in the probe, are former SAC analysts or portfolio managers, Horvath was the first to be working at SAC when he was arrested.

Freeman’s Testimony
Noah Freeman, a former analyst at Stamford, Connecticut- based SAC, testified in June at a criminal trial in a related case that he had traded on inside information a half-dozen times while at the hedge fund. Freeman, who was fired from SAC in January 2010, pleaded guilty in February to insider trading.

Jonathan Gasthalter, a spokesman for SAC Capital, said the hedge fund is continuing to cooperate with the government’s investigation. He declined to comment further.

Yesterday’s charges involved a circle of friends “who essentially formed a criminal club whose purpose was profit and whose members regularly bartered lucrative inside information,” said U.S. Attorney Preet Bharara. “It was a club where everyone scratched everyone else’s back.”

The group of friends all worked and lived in San Francisco in 2006, according to a civil complaint filed by the Securities and Exchange Commission and public records.

Sandeep Goyal, known as Sandy, worked at Dell for three years before joining Prudential Equity Group in 2006, the SEC said. There the analyst, now 39, met Spyridon Adondakis, known as Sam, and 34-year-old Jesse Tortora, who later became an analyst for Diamondback Capital Management.

New York Move
Horvath was working as an analyst for Lehman Brothers Holdings Inc. and Danny Kuo, now 36, was an analyst at Merrill Lynch & Co., according to the complaint.

The five friends moved to the New York area over the next two years, and it was there the government started monitoring their activities.

The criminal complaint outlines trades in Dell preceding earnings results for the first two quarters of 2008. In the first quarter, the computer company’s earnings beat estimates and the shares rose, and in the second the shares fell after Dell reported disappointing results.

Goyal, who in 2008 was working at Neuberger Berman, an investment firm he left last month, had a source at Dell in the investor-relations department who was providing him with confidential information, according to the complaint.

Dell Trades
Goyal shared the data with Tortora of Stamford-based Diamondback. He in turn passed it on to his boss, Todd Newman, who was also indicted yesterday, and to his friend Kuo, who was then working at the South Pasadena, California, office of a hedge fund. Diamondback made $3.8 million on the inside information about Dell, according to the government.

Adondakis, 40, who had gotten a job at Level Global, passed information to his boss Chiasson, who along with others at the New York-based firm made $57 million on the tips, according to the complaint.

Tortora also passed information on to Horvath, the government said. An unidentified portfolio manager at SAC traded on that information and made about $1 million, the government said.

Adondakis, Tortora and Goyal have pleaded guilty and are cooperating with the probe, Bharara said. Justine Harris, a lawyer for Adondakis; Jessica Margolis, who represents Goyal; Alfred Pavlis, who represents Newman; and Ralph Caccia, who represents Tortora, didn’t return phone messages seeking comment. A lawyer representing Kuo, who was also accused, couldn’t be determined.

‘Proactively Assisting’
Diamondback told investors in a letter yesterday it has been “proactively assisting the U.S. Attorney’s Office and the SEC since we became aware of the inquiry.”

The government has caught high-profile targets, regulators said yesterday.

“The illegal conduct alleged in today’s action was not perpetrated by fringe players in the investment advisory industry, but rather in the largest and most sophisticated hedge-fund investors in the country,” said Robert Khuzami, head of enforcement at the SEC.

The case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan).

source: bloomberg.com