Bloomberg News

Ex-Diamondback Manager Aided FBI Insider Probe, U.S. Says

July 25, 2012

Anthony Scolaro, a former portfolio manager for Diamondback Capital Management LLC, provided “substantial assistance” to a federal probe of insider trading at hedge funds, according to U.S. prosecutors.

Scolaro, who pleaded guilty in November 2010 to conspiracy and securities fraud, made at least 43 recorded calls with various individuals that were monitored by the Federal Bureau of Investigation, assistant U.S. attorneys Reed Brodsky and Antonia Apps said in a letter to the court filed today in Manhattan.

He also helped develop “leads and other valuable information” in connection with a search executed at Diamondback, as well as the government’s crackdown on so-called expert-networking consultants, according to the letter.

“Scolaro’s timely cooperation with the government was substantial,” Brodsky and Apps said. “Scolaro’s cooperation provided the government with valuable information about the hedge fund industry and the use of matchmaking firms. Scolaro’s cooperation led directly to several investigations,” they said.

Scolaro is scheduled to be sentenced on July 30 by U.S. District Judge William Pauley in New York. He admitted to participating in an insider-trading scheme with Franz Tudor, a former Galleon Group LLC fund manager in a conspiracy that began in October 2007 and ended in 2008.

Twenty Years

The most serious charge of securities fraud carries a term of as long as 20 years in prison.

In pleading guilty, Scolaro said that while a portfolio manager at Diamondback’s Stamford, Connecticut, offices, he learned from Tudor that Axcan Pharma Inc. was going to be acquired by TBG Capital. Scolaro admitted to purchasing “tens of thousands of shares” of Axcan based on Tudor’s information and eventually made about $1.1 million in profit from the illegal tip.

As soon as FBI agents approached Scolaro, prosecutors said, he admitted responsibility and started cooperating. He met with the FBI about 75 times during an 18-month period prior to the unsealing of his case in May 2011, Brodsky and Apps said.

“Since being approached by the FBI, Scolaro never complained or hesitated in providing assistance to the government,” they wrote.

In late November 2010, FBI agents from New York and Boston executed search warrants at the offices of Level Global Investors LP as well as Diamondback, firms founded by alumni of SAC Capital Advisors LP. Agents that day also searched the offices of Loch Capital Management in Boston.

The case is U.S. v. Scolaro, 11-cr-429, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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