Former Diamondback Capital Management LLC analyst Jesse Tortora told a federal court jury he passed illegal tips about Dell Inc. (DELL:US) and Nvidia Corp. (NVDA:US) to his boss, portfolio manager Todd Newman.
Tortora, who has pleaded guilty to securities fraud and is cooperating with the U.S., was the first witness to testify as the insider-trading trial of Newman and Level Global Investors LP co-founder Anthony Chiasson got under way yesterday in Manhattan. Newman and Chiasson are accused of using a “corrupt chain” of insiders at public companies to make more than $70 million for their funds.
Tortora told jurors he got illicit tips on Dell and Nvidia from friends who worked at the technology companies and passed them to Spyridon “Sam” Adondakis, who worked for Chiasson. Tortora said Adondakis told him he gave the information to Chiasson and David Ganek, another co-founder of New York-based Level Global.
Asked by Assistant U.S. Attorney Antonia Apps what Adondakis told him he did with the inside information, Tortora replied, “He told me he passed the inside information to his superiors, Chiasson and Ganek, for the purpose of trading on it.”
Lawyers for Newman and Chiasson told jurors in their opening statements yesterday that their clients didn’t know the information they received was obtained illegally.
Tortora said he also passed illegal tips to his friend Jon Horvath, a former SAC Capital Advisors LP technology analyst who pleaded guilty and is cooperating with the U.S.
Apps asked Tortora what Horvath said he did with the nonpublic information about technology companies he passed to him.
“He told me he passed it to his superior, Mike Steinberg for trading purposes,” Tortora replied.
Michael Steinberg and Ganek haven’t been accused of criminal wrongdoing. Steinberg’s lawyer, Barry Berke, previously declined to comment on the case. Ganek’s attorney, John Carroll, said his client hasn’t been charged in the case.
“After a two year investigation and with the trial now under way it speaks for itself that one, no one else from the fund has been charged and two, I haven’t heard anything from the government about my client,” Carroll said in an e-mailed statement.
Jonathan Gasthalter, a spokesman for SAC Capital, declined to comment on Tortora’s testimony.
Of the eight people charged in the case, six have pleaded guilty to insider trading, including Tortora, Adondakis and Danny Kuo, a former analyst at Whittier Trust Co., a South Pasadena, California-based wealth-management company.
Assistant U.S. Attorney Richard Tarlowe told jurors in his opening statement yesterday that the government’s witnesses will include Adondakis, former Dell employee Sandeep Goyal and Hyung Lim, a former Altera Corp. (ALTR:US) executive.
“They used a corrupt chain of people to get the information into the hands of the defendants,” Tarlowe said. “The defendants chose to break the law. Why? Because they wanted to make big money for themselves and for their hedge funds.”
Chiasson made more than $57 million trading on illegal Dell tips and about $10 million on Nvidia, the prosecutor said. Newman, at Stamford, Connecticut-based Diamondback, made about $3.8 million from Dell trades and earned about $48,000 on Nvidia, he said.
The two are charged with conspiracy to commit securities fraud and five counts of securities fraud. The latter crime is punishable by as long as 20 years in prison. Both men have pleaded not guilty.
Tortora told the jury he passed illicit tips, many of which he obtained from Goyal, to Newman and Adondakis.
Stephen Fishbein, a lawyer for Newman, told jurors his client didn’t know the information provided to him by Tortora was obtained illegally or was mixed in with legitimate research data.
“Todd Newman worked hard for his hedge fund,” Fishbein said. “He did not cheat. He did not steal. He did not try to get inside information.”
In 2008, when the alleged illegal Dell trades occurred, Newman traded on more than 100 stocks a day and relied upon analysts to prepare research for him, Fishbein said. After Newman fired Tortora, the analyst held a grudge against his former boss and the hedge fund, the lawyer said.
“Mr. Newman did not know anything, because he was far removed from the sources of inside information, and Tortora made it look like he was conducting legitimate, honest research,” Fishbein told the jury.
Chiasson’s lawyer, Reid Weingarten, told jurors that his client had no idea that Adondakis was passing illicit nonpublic information and instead argued Adondakis was obtaining and keeping inside information for himself and his group of friends.
Adondakis, Tortora and company insiders were members of a clique of friends who called themselves “the Fight Club” after a Brad Pitt movie. Weingarten called Adondakis “a corrupt member of the Fight Club” who liked to go to Las Vegas and rented vacation homes together in the Hamptons to the east of New York City.
“They traveled together, they partied together, they ate together, they went on vacation together, and they shared information,” Weingarten said.
Ganek hired Chiasson to be his analyst when he was at SAC Capital, the lawyer said. Both Ganek and Chiasson were astute at reading the market, enabling them to earn a “phenomenal” amount of money for SAC.
The lawyer assailed Adondakis’s credibility and urged jurors to see there won’t be any evidence corroborating his account that Chiasson knew he was receiving nonpublic information from his analyst.
“You will learn Adondakis was a criminal,” Weingarten told jurors. “He is an easy, practiced liar, and when it is in Sam Adondakis’s interest, he will lie,” Weingarten said. After the FBI approached him, Adondakis decided to implicate his friends as well as Chiasson, the lawyer said.
The case is the latest in a series of insider-trading cases that last month yielded a two-year prison sentence for the government’s highest-profile target, former Goldman Sachs Group Inc. (GS:US) Director Rajat Gupta. Gupta was convicted of insider trading for conspiring with Galleon Group LLC co-founder Raj Rajaratnam. The fund manager is serving a term of 11 years in prison.
Of 72 people charged with insider trading by U.S. Attorney Preet Bharara’s Manhattan office since August 2009, 69 have pleaded guilty or were convicted at one of six earlier trials. One man remains a fugitive.
The case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).
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