United States Attorney
Southern District of New York
Thursday, May 2, 2013
Former Hedge Fund Manager Sentenced in New York to 54 Months in Prison for Insider Trading
Todd Newman, a former portfolio manager at Diamondback Capital Management LLC, was sentenced in New York federal court to 54 months in prison for crimes stemming from his involvement in a multi-million dollar insider trading scheme, announced U.S. Attorney for the Southern District of New York Preet Bharara. Newman and co-defendant Anthony Chiasson, who was a former portfolio manager and co-founder of Level Global Investors LP, were convicted of various securities fraud charges on Dec. 17, 2012, following a six-week jury trial. At trial, Newman was convicted of one count of conspiracy to commit securities fraud, and four counts of securities fraud. He was sentenced today by U.S. District Judge Richard J. Sullivan.
U.S. Attorney Bharara said: “With today’s sentence, Todd Newman becomes the first member of this corrupt circle of friends to be punished for his conduct. Efforts to cheat the market by gaining an illegal edge ultimately lead to a loss of one’s liberty, as it did for Todd Newman today.”
According to the superseding indictment, other court documents, statements made in court and the evidence presented at trial:
Newman was part of a criminal club of portfolio managers and analysts who obtained material nonpublic information, directly and indirectly, from employees who worked at public companies. Specifically, Newman’s research analyst, Jesse Tortora, together with research analysts at other investment firms – including Sam Adondakis, Jon Horvath and Danny Kuo – shared inside information with each other which the analysts then provided to their portfolio managers.
For example, in 2008 and 2009, Newman received inside information from Tortora related to Dell Inc.’s quarterly earnings, which Tortora had received from Sandy Goyal, an analyst who worked at another firm. Goyal had a source inside Dell’s investor relations department who provided numerous updates on Dell’s earnings numbers in advance of Dell’s earnings announcements for multiple quarters in a row. Newman authorized payments to Goyal through a sham research consulting arrangement between Goyal’s wife and Newman’s firm, Diamondback Capital. In fact, Goyal’s wife never provided any research consulting services, but Diamondback nonetheless paid her $175,000 in 2008 and 2009. Newman traded on the Dell inside information in advance of the May 2008 and August 2008 quarterly earnings announcements, and earned nearly $4 million in illegal profits for his firm. Tortora also shared the Dell inside information with the other analysts, whose portfolio managers executed trades on that same Dell Inside information. Additionally, after Chiasson received the Dell inside information from his analyst Sam Adondakis, he executed or caused to be executed trades based on the inside information which resulted in more than $57 million in illegal profits for Level Global.
Similarly, in multiple fiscal quarters, Newman obtained inside information concerning NVIDIA Corporation’s earnings from analyst Danny Kuo, who worked at an investment firm in California. Among other things, email communications from Kuo that were forwarded to Newman via Tortora in advance of the quarterly earnings announcements stated that the NVIDIA earnings numbers were obtained from “an accounting manager” at the company. Newman’s trading in NVIDIA resulted in approximately $73,000 in illegal trading profits for the benefit of Diamondback Capital. The NVIDIA inside information was similarly received by co-defendant Chiasson, who executed and caused to be executed trades based on the Inside Information, resulting in approximately $10 million in illegal profits for Level Global.
In addition to the prison term, Judge Sullivan sentenced Newman, 48, of Needham, Mass. to one year of supervised release. Newman was also ordered to forfeit $737,724 and to pay a $1 million fine.
At trial, Chiasson, 39, of New York, N.Y. was convicted of one count of conspiracy to commit securities fraud, and five counts of securities fraud. He will be sentenced by Judge Sullivan on May 13, 2013.
Horvath, 43, and Kuo, 37, each pleaded guilty to one count of conspiracy to commit securities fraud and two counts of securities fraud in September 2012 and April 2012, respectively. Tortora, 35, Adondakis, 41, and Goyal, 40, each pleaded guilty to one count of conspiracy to commit securities fraud and one count of securities fraud in May 2011, April 2011, and June 2011, respectively. These defendants await sentencing.
U.S. Attorney Bharara praised the investigative work of the FBI. 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 U.S Attorney. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
Assistant U.S. Attorneys Antonia M. Apps, Richard C. Tarlowe, and John T. Zach are in charge of the prosecution.