The SEC and the Manhattan U.S. Attorney’s Office continued their war on insider trading, filing civil and criminal insider trading charges involving seven individuals and two hedge funds. The new criminal and civil charges, which revolve around trading in the shares of Dell, Inc. and NVIODIA, differ significantly from the Galleon and Expert Network cases. The new charges are built on trading and phone records and e-mails and instant messages authored and sent by those involved in the scheme. The criminal and civil complaints are replete with quotes from e-mails and details about the time the message was sent and the trades were placed. The new charges are also bolstered by the cooperation of two key participants who pleaded guilty and are assisting enforcement officials. This contrasts sharply with the Galleon and expert network cases which, while using similar evidence, center largely on dozens of wire tap tape recorded conversations. U.S. v. Newman, 12 mag 0124 (S.D.N.Y. filed Jan. 18, 2012); SEC v. Adondakis (S.D.N.Y. Filed Jan. 18, 2012).

Named as defendants in the criminal case are: Todd Newman, a portfolio manager at Diamondback Capital Management, LLC, an investment manager in Connecticut to hedge funds; Anthony Chiasson, a founding partner at Level Global Investors, L.P., an unregistered investment adviser in Connecticut and New York; Jon Horvath, a technology research analyst at an unidentified hedge fund; and Danny Kuo, a vice president and fund manager at an unidentified investment adviser. The Commission’s complaint names each of these individuals as defendants along with: Spyridon Adondakis, an analyst at Level Global; Sandeep Goyal, an analyst at an unidentified investment adviser and formerly a manager of corporate planning at Dell; Todd Newman, a portfolio manager at Diamondback; Jesse Tortora, an analyst at Diamondback; Diamondback Capital; and Level Global. Messrs. Tortora, Adondakis and Goyal were not named in the criminal complaint because each previously pleaded guilty to criminal charges.

The charges center on alleged insider trading in the securities of the two companies in 2008 and 2009. The charges regarding Dell focus on inside information furnished by an unidentified company employee, who at times worked in the investor relations department, to his friend, Sandeep or Sandy Goyal, regarding future earnings releases. Specifically, beginning in July 2008 Mr. Goyal obtained inside information regarding Dell’s revenues and or gross margins for the second quarter. Following the close of the quarter, but prior to the August 28, 2008 earnings announcement, the Dell employee told Mr. Goyal that the gross margin for Dell would be lower than market expectations. Mr. Goyal in turn passed the information on to Mr. Tortora who conveyed it in an e-mail to his superior, Mr. Newman. On August 5, 2008 Mr. Tortora also forwarded the e-mail to Messrs. Adondakis, Horvath and Kuo. Later Mr. Goyal confirmed the information which was again circulated among the group.

Based on the information Mr. Goyal obtained from the Dell insider, Diamondback, Level Global and the unidentified fund which employed Mr. Horvath, sold Dell shares short. Those entities are alleged to have obtained profits, respectively, of $2.8 million, $50 million and $1 million.

In a second part of the scheme Mr. Kuo is alleged to have obtained inside information regarding the revenues, gross profit margins and other financial metrics of NVIDIA prior to the release of the information in 2009. He used this information for the benefit of his employer, an unidentified investment adviser, according to the court papers.

Mr. Kuo also passed the information about NVIDIA on to Mr. Adondakis who in turn furnished it to his superior Mr. Chiasson who traded on it for Level Global hedge funds. Mr. Kuo also furnished the information to Mr. Tortora who transmitted it to his superior, Mr. Newman, who used it to trade on behalf of Diamondback hedge funds. As a result Level Global’s hedge funds obtained profits or avoided losses of at least $15.6 million. Diamondback’s hedge funds reaped profits of at least $75,000 while the unidentified investment adviser obtained profits and avoided losses of at least $90,000.

The criminal complaint contains two counts of conspiracy to commit securities fraud and four counts of securities fraud. The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Both are pending. The investigation which resulted in these cases is on-going.

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