New York, NY – Yesterday, federal authorities formally charged seven current or former analysts and portfolio managers at US buy-side institutions for illicitly collecting and trading on insider information related to computer-maker Dell Corp. These most recent charges extends the government’s fourteen month long insider-trading investigation.
The Latest Round of Charges
Based on information from cooperating witnesses, as well as hundreds of hours of wiretapped conversations between hedge fund analysts and public company employees, federal authorities charged seven people yesterday in Boston, New York and California. Authorities said that the co-conspirators in the case netted more than $61.8 million in illegal profits based on trades of Dell between 2008 through 2009. These arrests include:
- Todd Newman, a former portfolio manager who oversaw technology investments at Diamondback Capital
- Jon Horvath, a technology analyst at Sigma Capital Management, an affiliate of SAC Capital Advisors
- Anthony Chiasson, a co-founder of hedge fund Level Global Investors
- Danny Kuo, a VP and technology fund manager with Whittier Trust Company
Also charged in the investigation were Spyridon “Sam” Adondakis, a former Level Global analyst who worked for Mr. Chiasson; Jesse Tortora, an ex-Diamondback analyst who worked for Mr. Newman; and, Sandeep “Sandy” Goyal, an analyst who worked for mutual fund Neuberger Berman Group, but who previously worked at Dell’s corporate headquarters from the summer of 2006 through May 2007. Mr. Adondakis, Mr. Tortora, and Mr. Goyal have entered guilty pleas and are reportedly cooperating with the government in their investigation.
It had also been previously reported by the Wall Street Journal that federal authorities had been pursuing charges against Neuberger Berman analyst Fayad Abbasi. Since the initial WSJ article mentioning him, Mr. Abbasi was put on leave and has hired a defense attorney. Mr Abbasi was not among those arrested yesterday, though Mr. Abbasi worked with Mr. Goyal who was charged.
According to court papers, after Mr. Goyal became an analyst at Neuberger Berman, he obtained inside information from a co-conspirator who worked in Dell’s investor relations department from March 2007 through March 2009 and in its corporate development office from March 2009 through April 2010. The SEC said Goyal tipped Tortora who then tipped several others, leading to insider trades at Diamondback Capital and Level Global.
Since the start of the broad insider trading investigation, the office of Manhattan U.S. Attorney Preet Bharara has now charged 63 people with insider-trading – 56 of whom have either pleaded guilty or have been convicted at trial.
Impact on Research
The latest round of insider-trading charges are unlikely to dampen the buy-side’s appetite for external research, as most institutional investors spent much of 2011 vetting their existing pool of research providers and implementing formal procedures to better manage their use of these firms. However, we do think the ongoing insider-trading investigation will keep buy-side compliance officers very focused on managing the risk of using external research providers – a factor which will keep them immensely involved in the process of accepting new research providers into a buy-side firm.
It is also important to note that in the latest charges by federal authorities, asset managers are reported to have cut out “expert networks” or other alternative research firms and developed their own sources of information, which they then shared with each other for mutual benefit.
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