Hedge fund analysts part of ‘Fight Club’ cited at insider trial. Former analyst describes the Fight Club Scheme
(Reuters) – Two former hedge fund managers reaped a total of $70.8 million in illegal profits by tapping a “corrupt network” of Wall Street analysts, a U.S. prosecutor said at the start of an insider trading trial on Tuesday.
Anthony Chiasson, left, a co-founder of the Level Global Investors hedge fund, and Todd Newman, once a portfolio manager.
Todd Newman, who was a portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors, were charged in January in a sweep dubbed “Operation Perfect Hedge” by the Federal Bureau of Investigation. More than 70 people have been charged in the government’s broad probe of Wall Street trading.
Anthony Chiasson, 39, and Todd Newman, 48, are accused of illegally trading ahead of computer maker Dell Inc’s earnings reports for the first and second quarters of 2008, netting profits of $57 million and $3.8 million, respectively. Chiasson is also accused of netting $10 million in illegal profits ahead of the May 2009 results of chipmaker Nvidia Corp.
Prosecutor Richard Tarlowe told jurors in U.S. District Court in Manhattan that Newman and Chiasson had made huge trades based on confidential company secrets obtained by a close-knit group of research analysts.
“This is a case about how the defendants got secret, confidential information about publicly traded companies,” Tarlowe said. “They chose to break the law and to use (the information) anyway. Why? To make big money for themselves and for their hedge funds.”
Lawyers for Newman and Chiasson countered that their clients did not know that any of the information was secret because the analysts who provided it had made their stock recommendations appear legitimate.
Several of those analysts have previously pleaded guilty to related insider trading charges. One of them, Jesse Tortora, be gan testifying for the prosecution on Tuesday.
“What Mr. Newman did not know was that mixed in Mr. Tortora’s information… was information that Mr. Tortora now says was obtained improperly,” Newman’s lawyer, Stephen Fishbein, said in his opening statement.
Tortora, who worked for Newman as an analyst, made his work appear like “legitimate, honest research,” Fishbein said.
Former Level Global analyst Spyridon Adondakis, who has also pleaded guilty, is expected to testify at a later date.
Together with Sandeep “Sandy” Goyal – who is cooperating with the government – and others, the analysts formed a “corrupt network of professionals who chose to break the rules,” Tarlowe said.