September 18, 2020

DealBook: Chiesi Sentenced in Galleon Insider Trading Case

Shannon Stapleton/Reuters

3:40 p.m. | Updated Danielle Chiesi, a former beauty queen turned hedge fund trader, got a thrill about pumping insiders and snaring secret tidbits about companies.

“It’s a conquest,” she said on a call recorded by the government. “It’s mentally fabulous for me.”

But her passion has landed her in prison

On Wednesday, a federal judge in Manhattan sentenced Ms. Chiesi to 30 months in prison for trafficking inside information.

The hearing was the latest chapter in the government’s sweeping crackdown on insider trading. The investigation centered on Raj Rajaratnam, the co-founder of the Galleon Group hedge fund, who was convicted in May.

While Ms. Chiesi did not testify against Mr. Rajaratnam, her recorded voice became a regular feature at his trial. Their damning conversations, along with the testimony of Adam Smith, a former Galleon employee, proved crucial. Mr. Rajaratnam is set to be sentenced on Sept. 27 and could face up to 25 years in prison.

In January, Ms. Chiesi pleaded guilty to three counts of participating in the conspiracy. She acknowledged leaking information about I.B.M., Advanced Micro Devices and Sun Microsystems. Her activities, prosecutors have said, earned her $1.7 million.

Prosecutors sought a sentence of up to 46 months. Ms. Chiesi’s lawyers had asked for leniency, blaming her actions on a tormented love affair with her former boss. .

Standing before Judge Richard J. Holwell in a lower Manhattan courtroom, Ms. Chiesi apologized as she choked back tears.

“I know that there is a punishment for breaking the law, but it won’t happen again, said Ms. Chiesi, wearing a pink dress and matching pumps with her platinum-blond hair pulled back.

But Judge Holwell was unmoved. Along with the 30 month prison term, Ms. Chiesi was also sentenced to two years of supervised release, 250 hours of community service, $25,000 fine, and mandatory mental health and alcohol treatment. Prosecutors sought a sentence of up to 46 months.

“The message to Wall Street needs to be clear: if you trade on inside information, you will be caught,” Judge Holwell said.

The judge said the community service, in particular, would help “adjust her moral compass, which obviously fell by the wayside.” He did acknowledge that Ms. Chiesi, who previously told the judge that she was receiving psychiatric care, suffered from a borderline personality disorder.

On Wednesday, her lawyer Alan R. Kaufman said, “This is not a pleasant day by any means, but it is at least over.”

After the hearing ended, a smiling Ms. Chiesi approached federal prosecutors and agents for the Federal Bureau of Investigation. She told them that “if you’re ever going to knock on my door then do it in the afternoon,” in a nod to her early morning arrest in October 2009. Prosecutors wished her “good luck,” as Ms. Chiesi left with her mother, sister and two nieces,

The sentence brings her curious criminal saga to a close.

A Binghamton, N.Y., native, Ms. Chiesi began her Wall Street career in the late 1980s. She later landed at New Castle Funds, a hedge fund that was spun off from Bear Stearns.

Ms. Chiesi, 45, became known on Wall Street for her colorful personality and robust rolodex. Her specialty was the technology world, in which she built a network of sources whom she prodded for corporate secrets. Her tipsters included Robert W. Moffat Jr., a former senior executive at I.B.M., who has since pleaded guilty to participating in the scheme.

After gathering a few nuggets, Ms. Chiesi would pass on the information to Mr. Rajaratnam, among other traders. In July 2008, a source informed Ms. Chiesi that Akamai, an Internet company, was going to report less than stellar results. “I just got a call from my guy,” she later told Mr. Rajaratnam. “I played him like a finely tuned piano.”

Unbeknownst to the pair, the government was listening. Such secretly recorded tapes ultimately became the lynchpin in the government’s case.

They also provided a window into Ms. Chiesi’s flirtatious style.

She alternately referred to Mr. Rajaratnam as “baby” and “honey.” She also struck up romances with Mr. Moffat of I.B.M. and Mark Kurland, her boss at New Castle.

Her affair with the married Mr. Kurland lasted for nearly 20 years and spanned across jobs. A 22-year-old Ms. Chiesi met Mr. Kurland, then 40, in 1988 while working at a brokerage firm in New York. Mr. Kurland later launched New Castle, and hired his lover to join the team.

Both eventually joined the insider-trading ring. Mr. Kurland already pleaded guilty to insider trading, and was sentenced to 27 months in prison.

Ms. Chiesi’s lawyers blamed the affair — and Mr. Kurland — for involving her in the illicit plot.

Her “emotional and financial wellbeing were inextricably linked with Kurland,” her lawyer, Mr. Kaufman, said in a recent court filing. Her counsel continued to emphasize the connection at the sentencing.

“We continue to believe that Dani’s sentence should not have been any longer than the sentence received by her boss at New Castle,” Mr. Kaufman said on Wednesday. “But we respect the judges thoughtfulness and thoroughness.”

While Ms. Chiesi initially fought the charges, ultimately, the government’s secret recordings were insurmountable. Some of the recorded conversations even proved prophetic.

“You put me in jail if you talk,” she said on an August 2008 call with an associate. “I’m dead if this leaks. I really am, and my career is over.”

Article source: http://feeds.nytimes.com/click.phdo?i=249106a6f2072d9abe7ad1f738a2ff35

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