DealBook: Trial to Open in $68 Million Insider Trading Case

Mike Segar/ReutersAnthony Chiasson, who co-founded the Level Global Investors, faces charges of insider trading.

In the sharp-elbowed world of Wall Street, Anthony Chiasson and Todd Newman stood out as two of the good guys.

Both were hard-working, below-the-radar types who eschewed the flashy lifestyle embraced by many millionaire hedge fund traders. Mr. Chiasson’s mother told reporters that her son’s idea of a fun weekend was to return to his hometown, Portland, Me., to attend church. Mr. Newman, also originally from New England, worked out of Boston, where he is raising a family in Needham, Mass., a low-key suburb.

Yet federal prosecutors say Mr. Chiasson and Mr. Newman were criminals, operating “a tight-knit circle of greed” along with six others who trafficked in secret information about technology companies.

On Tuesday, Mr. Chiasson, 39, a co-founder of the now-defunct Level Global Investors, and Mr. Newman, 47, a former portfolio manager at Diamondback Capital Management, are set to stand trial in Federal District Court in Manhattan. Prosecutors say they were part of a conspiracy that made about $68 million illegally trading the computer company Dell and the chip maker Nvidia.

The other six traders have pleaded guilty. Some are expected to testify against Mr. Chiasson and Mr. Newman.

Mr. Chiasson’s and Mr. Newman’s trial is expected to shed light on the trading strategies and techniques of SAC Capital Advisors, based in Stamford, Conn., a hedge fund giant run by the investor Steven A. Cohen.

SAC Capital, which has one of the best investment track records on Wall Street, has become a breeding ground for hedge fund managers. Both Level Global and Diamondback were started by traders who trained under Mr. Cohen. And one of the six traders who have admitted to the conspiracy was employed at SAC Capital.

The case is one of the larger prosecutions brought by the government in its broad investigation into insider trading, which has yielded 69 convictions and resulted in prison sentences for dozens of hedge fund traders. Last month, Rajat K. Gupta, a former director of Goldman Sachs, was sentenced to two years in prison after a jury found him guilty of leaking boardroom secrets about the bank to the former hedge fund billionaire Raj Rajaratnam, who is serving an 11-year term.

Most of the defendants in the insider trading cases have pleaded guilty, but of the eight who have taken their cases to trial, all have been found guilty.

The case is the outgrowth of the Federal Bureau of Investigation’s raid two years ago this month of Level Global and Diamondback. Last January, Preet Bharara, the United States attorney in Manhattan, brought the criminal case against Mr. Chiasson, Mr. Newman and six others.

Among those accused of being co-conspirators with the defendants are Spyridon Adondakis, a former trader at Level Global who worked under Mr. Chiasson, and Jesse Tortora, a onetime Diamondback employee. Both men have pleaded guilty to insider trading charges. They have cooperated with prosecutors and are expected to testify against their former colleagues.

Charles Krupa/Associated PressTodd Newman was a portfolio manager at Diamondback Capital Management.

Lawyers for Mr. Chiasson and Mr. Newman are expected to attack the cooperators, accusing them of trying to curry favor with the government by accusing their bosses of being involved in their illegal trading scheme.

The former SAC Capital trader who admitted being part of the scheme is Jon Horvath. Mr. Horvath admitted passing confidential information to his portfolio manager, who was named an unindicted co-conspirator in the case. The portfolio manager is Michael Steinberg, according to a person with direct knowledge of the case who requested anonymity because he was not authorized to discuss it publicly.

Barry Berke, a lawyer for Mr. Steinberg, declined to comment.

The reported conspiracy’s origins are traced to Sandeep Goyal, a former Dell employee who left the technology industry to take a job on Wall Street. While working as a tech-stock analyst at the money manager Neuberger Berman, Mr. Goyal tapped a contact inside Dell to obtain advance word about the computer maker’s financial results. He then gave that information to his network of contacts on hedge fund trading floors, and it ultimately reached Mr. Chiasson and Mr. Newman, prosecutors say.

Mr. Goyal has pleaded guilty to insider trading charges; the unnamed Dell executive has not been charged in the case. Earlier in their careers, Mr. Goyal, Mr. Tortora and Mr. Adondakis all worked together at the Prudential Equity Group, and they socialized together in Manhattan and the Hamptons.

The F.B.I. raid had a devastating effect on Level Global, which was forced to close shortly after the federal agents seized trading records and hardware from the firm. Diamondback has remained in business. This year, it paid about $9 million to settle a lawsuit brought against it by the Securities and Exchange Commission related to the Dell trades. It also struck a nonprosecution agreement with the Justice Department.

Level Global made by far the most profit in the conspiracy, pocketing about $57 million by betting against Dell stock ahead of a negative earnings announcement, prosecutors say.

Mr. Chiasson and David Ganek started Level Global in 2003 shortly after leaving SAC Capital. At Level Global’s peak, they managed about $4 billion in assets and had marquee clients like New York’s state pension fund. They used the name Level, Mr. Chiasson once said, because it was “a palindrome which connotes balance and adaptability — two key investing traits.”

Mr. Chiasson’s reserved style contrasted with that of Mr. Ganek, a more voluble type. While Mr. Chiasson steered clear of New York society, Mr. Ganek and his wife, the novelist Danielle Ganek, became fixtures at Manhattan charity events and art auctions. Mr. Ganek has not been charged in the case.

Mr. Newman, who is accused of making about $3.8 million in illegal profit, worked at the Tudor Investment Corporation, one of the world’s most prominent hedge funds, before joining Diamondback. He was part of a tight network of hedge fund traders based in Boston who specialized in technology stocks.

Lawyers for Mr. Chiasson and Mr. Newman tried to make their cases two separate trials, arguing that they were not part of a single purported conspiracy. Judge Richard J. Sullivan denied that request.

Reid H. Weingarten, a partner at Steptoe Johnson who defended Bernard J. Ebbers, the former WorldCom chief executive, and Gregory Morvillo of the Morvillo law firm, represent Mr. Chiasson. Representing Mr. Newman are Stephen Fishbein and John A. Nathanson, both of Shearman Sterling.

Trying the case for the government are Antonia M. Apps and Richard C. Tarlowe, one of the prosecutors who secured a conviction of Mr. Gupta, the former Goldman director.

A 12-person jury has been impaneled after two days of jury selection. Lawyers dismissed a number of potential jurors with connections to the case, including a doorman at Mr. Chiasson’s luxury Upper East Side apartment building and a former business-development executive at SAC Capital.

Article source: http://dealbook.nytimes.com/2012/11/12/trial-to-open-in-68-million-insider-trading-case/?partner=rss&emc=rss