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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Seven charged in $60m stock fraud

Seven charged in $60m stock fraud

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1Seven charged in $60m stock fraud Empty Seven charged in $60m stock fraud Thu Jan 19, 2012 10:42 pm

dindon1

dindon1
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Massive stock fraud rocks wall street

Greed on Wall Street set a new record, federal authorities say as they unveil a massive insider trading case charging a hedge fund co-founder with engineering a trade that earned a staggering $53 million in profits.

The illegal trade - the largest transaction ever prosecuted in Manhattan - was part of a $US78 million ($A75 million) scheme involving at least seven financial industry professionals, US Attorney Preet Bharara told reporters.

"Today's charges illustrate something that should disturb all of us: they show that insider trading activity in recent times has, indeed, been rampant and routine and that this criminal behaviour was known, encouraged and exploited by authority figures in several investment funds," Bharara said.

Of the $US78 million, nearly $US62 million was earned through tips provided by a Dell Inc employee to a former Dell worker who spread the information among his friends at at least five investment houses, including three hedge funds. Bharara called it "a stunning portrait of organised corruption on a broad scale" and said it raised to 63 the number of people arrested in a government crackdown on insider trading. So far, there have been 56 convictions.

"Each wave of charges and arrests seems to produce leads to lead us to the next phase," said FBI assistant director-in-charge Janice K. Fedarcyk.

She said the arrests were not the last in a four-year-old probe dubbed Operation Perfect Hedge.

"If you are engaged in insider trading, what distinguishes you from the dozens who have been charged is not that you haven't been caught; it's that you haven't been caught yet," she said.

The criminal complaint in the US District Court in Manhattan charged four of the men with conspiracy to commit securities fraud and securities fraud, among other charges. Three analysts charged in the other documents have already pleaded guilty and are co-operating with the government.

The insider trading plot was noteworthy for its size. Last month, hedge fund founder Raj Rajaratnam began serving an 11-year prison term - the longest ever given in an insider trading case - for a scheme that prosecutors said produced as much as $US75 million in profits on dozens of trades over a multi-year period. That prosecution resulted in more than two dozen convictions and led to a spinoff probe that produced even more arrests.

Bharara said the case he announced on Wednesday was comparable to the one brought against Rajaratnam, of Sri Lanka. He highlighted its size, saying the co-conspirators netted more than $US61.8 million in illegal profits based on trades of a single stock from 2008 through 2009. The Securities and Exchange Commission (SEC) said the profits, combined with $US15.7 million earned on trades involving Nvidia Corp, reached nearly $US78 million.

The SEC said the case involved closely associated hedge fund traders at Stamford, Connecticut-based Diamondback Capital Management LLC and Greenwich, Connecticut-based Level Global Investors LP.

Anthony Chiasson, a co-founder at former hedge fund group Level Global Investors, was among four men arrested on Wednesday. He surrendered to the FBI in New York.

In court papers, he was credited with a starring role in the securities fraud. Authorities said a hedge fund analyst fed Chiasson inside information about an upcoming announcement of Dell's earnings for the first and second quarters of 2008, allowing Chiasson and others at his hedge fund to make approximately $US57 million in illegal profits through trades.

Assistant US Attorney David S. Leibowitz told a magistrate at Chiasson's initial court appearance in Manhattan that the allegations against him were "staggering" and, if successfully proved, could result in a prison sentence of at least 10 years. He said the $US53 million Chiasson earned for his hedge fund by shorting Dell stock on early word that its earnings would disappoint was the largest illegal trade ever cited in a criminal case in federal court in Manhattan.

Jon Horvath, an analyst at Sigma Capital Management, an affiliate of hedge fund SAC Capital Advisors in Manhattan, was arrested at his New York City home while Todd Newman, a hedge fund portfolio manager, was arrested in Needham, Massachusetts. Analyst Danny Kuo, of San Marino, California also was arrested.

Among those who have pleaded guilty to charges of conspiracy and securities fraud and are co-operating in the case was Sandeep Goyal, of Princeton, New Jersey, who worked from the summer of 2006 through May 2007 for Dell at its corporate headquarters in Round Rock, Texas, and obtained inside information from employees of Dell after he began working as an associate analyst for a global asset management firm in Manhattan, court papers said.

Another co-operator was identified as Jesse Tortora, of Pembroke Pines, Florida. The SEC said Goyal tipped Tortora who then tipped several others, leading to insider trades on behalf of the Diamondback and Level Global hedge funds.
The third cooperator was identified as Spyridon (Sam) Adondakis, a Level Global analyst. The SEC said he tipped Chiasson, his manager. Adondakis also lived in New York City.

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