Two Former Portfolio Managers Found Guilty In Manhattan Federal Court Of Insider Trading Schemes That Netted More Than $72 Million In Illegal Profits
Preet Bharara, the United States Attorney for the Southern District of New York, announced that TODD NEWMAN, a former portfolio manager at Diamondback Capital Management, LLC (“Diamondback”), and ANTHONY CHIASSON, a former portfolio manager and co-founder of Level Global Investors, LP (“Level Global”), were found guilty today of conspiracy and securities fraud crimes stemming from their involvement in insider trading schemes that netted more than $72 million in illegal profits. NEWMAN and CHIASSON executed trades based on material, nonpublic information (“Inside Information”) about two publicly traded technology companies, Dell, Inc. (“Dell”) and NVIDIA Corporation (“NVIDIA”), that they received from a circle of research analysts at several different investment firms – all of whom have previously pled guilty for their roles in the schemes. Those individuals are: Jon Horvath, a former research analyst who worked at Sigma Capital Management; Danny Kuo, a former research analyst and fund manager at Whittier Trust Company; Jesse Tortora, a former research analyst at Diamondback who worked for NEWMAN; Spyridon “Sam” Adondakis, a former research analyst at Level Global who worked for CHIASSON; and Sandeep “Sandy” Goyal, a former research analyst who worked at the Manhattan office of Neuberger Berman. NEWMAN and CHIASSON – who were arrested and charged by Complaint in January 2012, and further charged in a Superseding Indictment in August 2012 – were convicted after a six-week jury trial before U.S. District Judge Richard J. Sullivan.
Manhattan U.S. Attorney Preet Bharara said: “With today’s guilty verdicts, Todd Newman and Anthony Chiasson join the ranks of high-level investment fund managers who are being made to answer for their extraordinarily bad risk-reward analysis about what is right and what is wrong. Every member of this close-knit criminal club now stands convicted. Like scores of privileged professionals before them, Newman and Chiasson are finding out the hard way that the opportunity cost of gaining an illegal edge in the market is the loss of one’s liberty.”
According to the Superseding Indictment, other court documents, statements made in court, and the evidence presented at trial:
Throughout the insider trading scheme, Tortora, Adondakis, Horvath, and Kuo obtained Inside Information directly or indirectly from employees who worked at public companies, and then shared it with each other and with the Hedge Fund portfolio managers for whom they worked. For example, in 2008 and 2009, Tortora provided Adondakis, Horvath, and Kuo with Inside Information related to Dell’s quarterly earnings that he had received from Goyal, who had a source inside Dell’s investor relations department (the “Dell Insider”). Tortora also provided the Dell Inside Information to NEWMAN, and Adondakis provided that same information to CHIASSON. NEWMAN and CHIASSON were both told that the information came from a source at Dell.
In exchange for the Dell Inside Information, Tortora arranged with NEWMAN to pay Goyal via a sham research consulting arrangement Diamondback made with Goyal’s wife, the proceeds of which were deposited in their joint account. In fact, Goyal’s wife never provided any research consulting services, but Diamondback nonetheless paid Goyal’s wife $75,000 in 2008 and $100,000 in 2009.
The Dell Inside Information
The Dell Inside Information was used to execute illegal trades in the first and second quarters of 2008. For example, beginning in July 2008, the Dell Insider provided Goyal information concerning Dell’s gross margins for the August 2008 quarter. After the close of the quarter in 2008, but prior to Dell’s public earnings announcement on August 28 of that year, the Dell Insider provided to Goyal, who in turn provided to Tortora, more specific information concerning Dell’s margins that confirmed the gross margin would be lower than market expectations. On August 5, 2008, Tortora forwarded an email to Adondakis, Horvath and Kuo, that he originally sent to NEWMAN, that included the Inside Information he had received from Goyal. In the days before the August 28, 2008 earnings announcement, Goyal had additional communications with Tortora and again confirmed that Dell’s gross margin would be lower than market expectations. Tortora then passed this information on to NEWMAN and to Adondakis, who provided the information to CHIASSON. In all, as proved at trial, Diamondback made $3.8 million and Level Global made $58.5 million in illegal insider trading profits in connection with Dell’s May and August 2008 earnings announcements.
The NVIDIA Inside Information
In multiple fiscal quarters, Kuo obtained confidential earnings information about NVIDIA, a publicly traded technology company, shortly before the company’s public earnings announcements. Kuo obtained the information indirectly through a friend, in exchange for cash and other items of value. He then passed it along to his portfolio manager at Whittier Trust Company, as well as to Tortora, Adondakis, and Horvath. The information included NVIDIA’s gross margin and revenue information. Email communications from Kuo to the other research analysts stated explicitly that the information was coming from an employee inside NVIDIA. Tortora and Adondakis, in turn, provided the NVIDIA Inside Information to NEWMAN and CHIASSON, respectively. Both NEWMAN and CHIASSON executed transactions in securities of NVIDIA in advance of the company’s May 7, 2009 quarterly earnings announcement, resulting in illegal profits of approximately $73,000 for Diamondback and approximately $10 million for Level Global.
* * *
NEWMAN, 48, of Needham, Massachusetts, was convicted of one count of conspiracy to commit securities fraud, and four substantive securities fraud counts. CHIASSON, 39, of New York, New York, was convicted of one count of conspiracy to commit securities fraud, and five substantive securities fraud counts. The conspiracy count carries a maximum sentence of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offense.
NEWMAN is scheduled to be sentenced by Judge Sullivan on April 19, 2013 at 10:00 a.m. CHIASSON will be sentenced by Judge Sullivan on April 19, 2013 at 2:00 p.m.
Horvath, 43, and Kuo, 37, each pled guilty to one count of conspiracy to commit securities fraud and two substantive counts of securities fraud in September 2012 and April 2012, respectively.
Tortora, 35, Adondakis, 41, and Goyal, 40, each pled guilty to one count of conspiracy to commit securities fraud and one substantive count of securities fraud in May 2011, April 2011, and June 2011, respectively.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission. He also noted that the investigation is continuing.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
Assistant U.S. Attorneys Antonia M. Apps, Richard C. Tarlowe, John T. Zach, and Joshua Naftalis are in charge of the prosecution.