June 27, 2017

SAC Capital Traders Found Guilty

Before "Man of Steel" and even before SAC Capital was started, juries have been finding defendants guilty throughout the universe.

SAC Capital has been all over the news recently. Besides the art scene, the hedge fund’s manager, Steve Cohen, makes every attempt to avoid the press. The firm settled with the SEC for $500 million related to insider trading allegations. In December, the New York Times had the headline: “SAC Capital Traders Found Guilty.” It was a turning point that PETER LATTMAN AND WILLIAM ALDEN chronicle.

The case against Mr. Chiasson and Mr. Newman was seen as more challenging for the government than many previous insider trading prosecutions. In earlier cases, including the trial of the former hedge fund manager Raj Rajaratnam, the government played for the jury dozens of secretly recorded incriminating conversations.

In this case, however, the government did not have either defendant on wiretap. Instead, prosecutors were forced to rely on witness testimony, along with a smattering of e-mails and instant messages that they said showed that Mr. Chiasson and Mr. Newman traded while knowingly armed with secret corporate information.

The government built its case around the testimony of two key witnesses: Spyridon Adondakis, who is known as Sam, who worked for Mr. Chiasson at Level Global, and Jesse Tortora, who was supervised by Mr. Newman at Diamondback.

Both testified that they received secret financial information from sources inside the technology companies and then passed the tips along to their bosses. At Level Global, Mr. Chiasson used the confidential data to make a big bet against Dell and — in a single trade — earn more than $50 million, according to prosecutors.

The defense also argued that both Mr. Chiasson and Mr. Newman had no idea that the information provided to them by their “Fight Club” underlings came from secret sources inside the technology companies, believing instead that it was based on fundamental research.

The five-week trial garnered attention in part because of two funds’ ties to SAC. Mr. Chiasson co-founded Level Global with David Ganek, a former star trader at SAC who earned more than $100 million working for Mr. Cohen.

The two left SAC and started Level Global in 2003. At its peak, Level Global managed about $4 billion in assets.

Diamondback, where Mr. Newman worked as a portfolio manager, was started by Richard Schimel and Larry Sapanski, two former SAC employees. The fund grew to $6 billion in assets under management before becoming ensnared by the insider trading investigation.

Another former Diamondback employee, Anthony Scolaro, pleaded guilty to insider trading in late 2010 and cooperated with the government.

Level Global closed its doors shortly after the F.B.I. raid. Earlier this month, Diamondback announced that it was shutting down after a wave of investors withdrew money from the fund.

And there were other SAC connections: Jon Horvath, a member of the conspiracy who pleaded guilty, was an SAC analyst. As part of his guilty plea, Mr. Horvath said that he gave the confidential information about Dell and Nvidia to his boss at SAC, Michael Steinberg, and they traded based on that information. It emerged during the trial that just days before Dell announced quarterly earnings in 2008, Mr. Horvath e-mailed Mr. Steinberg with details about the computer maker’s financials.

“I have a secondhand read from someone at the company,” Mr. Horvath wrote. “Please keep to yourself as obviously not well known.”

Mr. Steinberg replied: “Yes normally we would never divulge data like this, so please be discreet. Thanks.”

Interesting! After the headline, “SAC Capital Traders Found Guilty,” the story only went downhill for the hedge fund. But its representatives have said that the firm will continue to run despite the SEC fine and $4 billion of investment withdrawals.

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