An Ex-Neuberger Analyst Pleads Guilty in Insider Trading Probe
News summary by MFWire's editors
An ex-Neuberger Berman [profile] analyst has reportedly pled guilty and is cooperating with the authorities in an insider trading probe. Yesterday the Securities and Exchange Commission (SEC) filed a suit, and confirmed that a U.S. attorney filed criminal charges, against former Neuberger junior technology analyst Sandeep Goyal and six others over "a $78 million insider trading scheme" involving inside information about Dell and Nvidia.
A spokesman for Neuberger, which hasn't been accused of any wrongdoing in the probe, told Bloomberg that Goyal left the New York-based mutual fund firm this month.
"This unethical behavior is contrary to the core values of our firm and the culture of compliance in which we operate," the spokesman told several of the pubs.
The SEC accuses Goyal, who spent three years at Dell before joining Neuberger, of receiving "$175,000 in soft dollar payments that were deposited in a brokerage account of an individual affiliated with him" for passing along inside information on Dell thanks to his connection with an unnamed source at the Texas-based computer giant.
Ex-Diamondback Capital Management trader Jesse Tortora and ex-Level Global Investors trader Spyridon Andondakis have also reportedly pleaded guilty and cooperated with the investigation. Meanwhile, yesterday the FBI arrested Sigma Capital Management technology analyst Jon Horvath, Whittier Trust vice president and technology fund manager Danny Kuo, and ex-Diamondback PM Todd Newman. Level Global co-founder Anthony Chiasson surrendered.
This case may seem like deja vu all over again to fundsters and other Wall Street insiders, the latest SEC insider-trading-related attack on people and firms tied to SAC Capital, the parent of Sigma Capital Management. In November 2010 the FBI raided the offices of Diamondback and Level Global, as well as a third hedge fund, Loch Capital Management [see MFWire.com, 11/24/2010 and 11/26/2010]. At the time several mutual fund firms revealed that federal investigators had asked them for information in the probe.
Then in November 2011 the Wall Street Journal reported that federal prosecutors were about to file charges against Diamondback and Level Global traders and a different Neuberger analyst, Fayad Abbasi [see MFWire.com, 12/1/2011]. Neuberger then reportedly put Abbasi on leave after his name emerged in a different insider trading trial [see MFWire.com, 12/5/2011]. Yet Abbasi was not charged in the complaints filed yesterday.
SEC release
Washington, D.C., Jan. 18, 2012 – The Securities and Exchange Commission today charged two multi-billion dollar hedge fund advisory firms as well as seven fund managers and analysts involved in a $78 million insider trading scheme based on nonpublic information about Dell’s quarterly earnings and other similar inside information about Nvidia Corporation.
The charges stem from the SEC’s ongoing investigation into the trading activities of hedge funds. The U.S. Attorney for the Southern District of New York today announced criminal charges against the same seven individuals.
The SEC alleges that a network of closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP illegally obtained the material nonpublic information about Dell and Nvidia. Investment analyst Sandeep “Sandy” Goyal of Princeton, N.J., obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008. Goyal tipped Diamondback analyst Jesse Tortora of Pembroke Pines, Fla., with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.
“These are not low-level employees succumbing to temptation by seizing a chance opportunity. These are sophisticated players who built a corrupt network to systematically and methodically obtain and exploit illegal inside information again and again at the expense of law-abiding investors and the integrity of the markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
According to the SEC’s complaint filed in federal court in Manhattan, the illicit gains in the Dell insider trades exceeded $62.3 million, and the illicit gains in the Nvidia insider trades exceeded $15.7 million. For his role in the scheme, Goyal was paid $175,000 in soft dollar payments that were deposited in a brokerage account of an individual affiliated with him.
The SEC alleges that after obtaining the inside information from Goyal in advance of Dell’s first and second quarter earnings announcements in 2008, Tortora tipped his portfolio manager at Diamondback, Todd Newman of Needham, Mass. Newman traded on the information on behalf of the Diamondback hedge funds he controlled. Tortora also tipped Spyridon “Sam” Adondakis, an analyst at Level Global. Adondakis tipped his manager Anthony Chiasson, who then traded on the inside information on behalf of Level Global hedge funds. During this time period, both Adondakis and Chiasson lived in New York City.
According to the SEC’s complaint, Tortora also tipped two others at firms other than Diamondback or Level Global with the Dell inside information: Jon Horvath of New York City and Danny Kuo of San Marino, Calif. Horvath caused insider trades at his firm that resulted in approximately $1.4 million of illicit gains. Kuo similarly caused the firm where he worked to execute profitable insider trades in Dell securities.
The SEC further alleges that Kuo also obtained inside information about Nvidia Corporation’s calculation of its revenues, gross profit margins, and other financial metrics in advance of the company’s first quarter 2010 earnings announcement, which was made in May 2009. Kuo again caused his firm to trade on inside information. Kuo’s insider trades in Dell and Nvidia resulted in approximately $270,000 in ill-gotten gains. Kuo also tipped Tortora at Diamondback and Adondakis at Level Global with the nonpublic information about Nvidia. Tortora again tipped Newman, who made more insider trades on behalf of the Diamondback hedge funds. The illegal trades in Dell and Nvidia securities resulted in $3.9 million in illicit gains for Diamondback. At Level Global, Adondakis tipped Chiasson who made the insider trades on behalf of those hedge funds. Chiasson’s insider trades in Dell and Nvidia resulted in approximately $72.6 million of illicit gains for the Level Global hedge funds.
The SEC’s complaint charges each of the defendants with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, additionally, charges Goyal, Tortora, Newman, Adondakis, Chiasson, Horvath and Kuo with aiding and abetting others’ violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint seeks a final judgment ordering the defendants to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.
The SEC’s investigation, which is continuing, has been conducted by Joseph Sansone, Daniel Marcus and Stephen Larson – members of the SEC’s Market Abuse Unit in New York – and Matthew Watkins, Neil Hendelman, Diego Brucculeri and James D’Avino of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in the matter.
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