Former Diamondback Capital Management LLC fund manager Todd Newman helped arrange secret payments to the wife of a man who was the source of illicit tips on Dell Inc. (DELL:US), a former Diamondback analyst testified.
Jesse Tortora, who worked for Newman from 2007 to 2010, told a federal jury in New York yesterday that his friend, Sandeep “Sandy” Goyal, repeatedly provided nonpublic information about Dell, such as gross margins, revenue numbers and sales, allowing Newman to earn millions of dollars. Goyal got the data from a Dell employee, Tortora said.
Tortora said Goyal couldn’t be paid as a consultant for Diamondback, because he already worked at Neuberger Berman Group LLC, a mutual fund. Goyal suggested to him they hire his wife, Ruchi Goyal, who was unemployed, Tortora said.
“I told Todd the situation with Sandy, that Sandy was our Dell contact and gets Dell data, that he works for Neuberger Berman and we can’t put him on the payroll,” Tortora testified, saying that Newman approved of the secret payment arrangement to Goyal’s wife.
Newman is on trial with Level Global Investors LP co- founder Anthony Chiasson, charged with using a “corrupt chain” of insiders at public companies to make more than $70 million for their funds by trading on illegal tips about Dell and Nvidia Corp. (NVDA:US)
Prosecutors allege Chiasson made more than $57 million trading on illegal tips on Dell and about $10 million on Nvidia. Newman is accused of making about $3.8 million from Dell trades and earned about $48,000 on Nvidia.
Both men, who have pleaded not guilty, are charged with conspiracy and securities fraud. Each count of securities fraud carries a maximum term of 20 years in prison.
Jurors were shown yesterday an Oct. 27, 2007, e-mail which Tortora wrote about Ruchi Goyal to human resources officials at Diamondback in which Newman was also a recipient. In the message, Tortora said: “Could you please sign up another consultant for us?”
Several e-mails shown to jurors yesterday by Assistant U.S. Attorney Antonia Apps indicated that Newman spoke to human resources in order to approve Ruchi Goyal’s consulting work for the fund.
Diamondback would eventually pay Ruchi Goyal $175,000 in fees and bonuses for information her husband provided, Tortora said. On two occasions, Tortora said Newman also stepped in to intercede when human resources asked Ruchi for written samples of the research she had done for Diamondback when she had none to show.
“Ruchi was asked to provide them with some sample research she had done,” Tortora testified. “Both times it happened I told Todd and I asked him what to do. I do not remember who spoke to who but Todd told me that it got taken care of.”
Jurors were shown a series of e-mails concerning Ruchi Goyal, including a Sept. 18, 2008, e-mail exchange between Tortora and Newman. “I think you went around them last time,” Tortora told Newman.
“I told her to try to do something before and will do again,” Newman replied in the e-mail.
Tortora, who has pleaded guilty to securities fraud and is cooperating with the U.S., is the first witness to testify for the government. Goyal, who has also pleaded guilty and will testify at the trial for the U.S., prosecutors have said. Ruchi Goyal hasn’t been charged with any criminal wrongdoing.
Tortora has described for the panel how he was part of a group of friends who traded on 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.
Adondakis will also testify for the government, prosecutors said. Tortora continues his testimony today before U.S. District Court Judge Richard Sullivan, who is presiding over the trial.
Both Chiasson and Newman worked at funds that were raided by the Federal Bureau of Investigation in November 2010, as part of a nationwide crackdown of illicit trading by portfolio managers, analysts and insiders at technology companies by the FBI in New York and Manhattan U.S. Attorney Preet Bharara’s office. Since August 2009, 72 people have been charged with insider trading.
The case is U.S. v. Newman, 12-00121, U.S. District Court, Southern District of New York (Manhattan).
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