‘Criminal Club’ Charged in $62 Million Trading Scheme on Dell

January 19, 2012, 12:06 PM EST By Patricia Hurtado and Bob Van Voris

Jan. 19 (Bloomberg) -- Seven men, including fund managers and analysts, were charged by the U.S. with forming a “criminal club” of friends and co-workers who reaped almost $62 million from insider trading in Dell Inc. shares.

Manhattan U.S. Attorney Preet Bharara alleged that the scheme included one trade that earned a $53 million illegal windfall for Level Global Investors LP co-founder Anthony Chiasson and his fund. The insider-trading ring, which involved five different hedge funds and investment firms, is the largest identified by the U.S. to date to involve a single stock, federal authorities said.

Chiasson, Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC, Jon Horvath, a hedge fund analyst in New York, and Danny Kuo, a fund manager for Whittier Trust Co. in South Pasadena, California, were taken into federal custody yesterday, said Janice Fedarcyk, head of the Federal Bureau of Investigation’s New York office.

The charges “paint a stunning portrait of organized corruption on a grand scale,” Bharara said yesterday at a news conference. “It describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information. It was a club where everyone scratched everyone else’s back.”

Galleon Group Scale

The U.S. said the illegal profits earned as a result of the scheme were almost of the same “magnitude of fraud we proved in the Galleon Group insider trading scheme,” Bharara said.

A five-year insider-trading probe by Bharara’s office and the FBI has resulted in charges against 63 people, Fedarcyk said. More than 50 have pleaded guilty or been convicted after trial since 2009, including Galleon Group LLC co-founder Raj Rajaratnam.

Rajaratnam, was found guilty in May and is serving 11 years in prison, the longest ever for insider trading. He made $72 million from his illicit tips, evidence showed. Several other technology company employees and fund managers have been convicted of receiving nonpublic information as a result of the probe.

At yesterday’s press conference, Bharara displayed a flowchart placing Sandeep Goyal, a former Dell employee, at the center of the ring. According to the U.S., an unnamed person in the Dell investor-relations department passed secret earnings information to Goyal, who passed it on to Jesse Tortora of Diamondback.

Circle of Friends

Tortora, Horvath, Kuo and Spyridon “Sam” Adondakis, a Level Global analyst, were friends who shared inside information on public technology companies, including Dell, prosecutors said. The ring traded the information in 2008 and 2009, according to the U.S.

Tortora passed the inside information on Dell to Newman before the computer maker announced its first- and second- quarter 2008 earnings, according to the U.S. Newman made $3.8 million in illegal profits for his hedge fund from trading on the information, according to the U.S. Tortora also passed tips to Kuo, Horvath and Adondakis.

Adondakis passed the Dell information to his colleague Chiasson and others at Level Global, according to the charging documents. They allegedly traded on the tips for $57 million in illegal profits.

Adondakis, Tortora and Goyal pleaded guilty last year to securities fraud and conspiracy charges that were unsealed yesterday, Bharara said. They are cooperating with the government’s investigation, he said.

‘More Disturbing’

Robert Khuzami, the head of enforcement at the U.S. Securities and Exchange Commission, which filed a related suit yesterday against the defendants, said the cases describe actions “far more disturbing” than insider trading committed by someone who obtains one illegal tip.

The actions by the SEC and prosecutors “lay bare an organized network of analysts and fund managers who set up and used a corrupt network to obtain inside information,” Khuzami said. “These cases, along with Galleon and expert networking cases, reflect systemic dishonesty and exposes a deeply-embedded level of corruption.”

Horvath, 42, is an analyst at Connecticut-based hedge fund Sigma Capital Management LLC, said a person with knowledge of the matter who wasn’t authorized to speak because the information wasn’t public. He was arrested by the FBI yesterday at his home in Manhattan, the U.S. said, and released on a $750,000 bond after a court appearance before U.S. Magistrate Judge James Cott in New York.

‘Honesty and Integrity’

“Throughout a more than 10-year career as a respected investment analyst, Jon Horvath has conducted himself with honesty and integrity,” Horvath’s lawyer, Steven Peikin, said after court. “He has done nothing wrong,’” and the charges against him “will be shown to be meritless,” Peikin said.

Chiasson, 38, used inside information to win for his Level Global fund what the U.S. said was a single “enormous bet” of $53 million on Dell earnings, prosecutors claimed.

“This is the largest single trade ever charged in the Southern District in an insider-trading case,” Assistant U.S. Attorney David Leibowitz said yesterday at a bail hearing, referring to the federal jurisdiction that includes Wall Street.

Greg Morvillo, Chiasson’s lawyer, argued that Leibowitz was attributing to his client trades made by others at Level Global.

Chiasson’s Bail

Chiasson, who turned himself in to U.S. authorities yesterday morning, was released on $2.5 million bond to be secured by $1.25 million in cash or property and three co- signers. Morvillo said in court that his client is innocent of the charges.

“He will be here to defend these charges, whether it’s tomorrow, next month or next year,” Morvillo told Cott.

Newman, 47, was released on a $3 million bond after appearing in U.S. District Court in Boston yesterday.

Kuo, 36, who was arrested yesterday in California, was released on $300,000 bond after appearing in federal court in Los Angeles.

Newman of Needham, Massachusetts, Chiasson of New York, Horvath of New York and Kuo of San Marino, California, are each charged with one count of conspiracy to commit securities fraud and one count of securities fraud. They face as long as 25 years in prison if found guilty, prosecutors said.

Goyal is a former junior technology analyst at Neuberger Berman, said Alexander Samuelson, a company spokesman. Goyal left the firm this month. Goyal, who didn’t trade on the information, was paid about $175,000, by Tortora through an intermediary, for the tips, Bharara said. Goyal worked for Dell at its corporate headquarters in Round Rock, Texas, from 2003 until the summer of 2006, prosecutors said.

Justine Harris, a lawyer for Adondakis; Jessica Margolis, who represents Goyal; Alfred Pavlis, who represents Newman; and Ralph Caccia, who represents Tortora, didn’t return phone messages seeking comment yesterday.

FBI Searches

In November 2010, FBI agents from New York and Boston executed search warrants at the offices of Level Global and Diamondback, hedge funds founded by former employees of SAC Capital Advisors LP.

Level Global told clients last February that it was shutting down -- eight years after David Ganek and Chiasson founded the hedge fund -- because of the U.S. probe.

Steven Goldberg, a spokesman for New York-based Level Global, didn’t return a call seeking comment on the arrests.

Diamondback, in a letter to investors yesterday, said it has cooperated with U.S. authorities. It said Newman left the firm after the 2010 search and Tortora resigned in April 2010.

Civil Complaint

The SEC’s civil insider-trading complaint was filed in Manhattan federal court against all seven men, Diamondback Capital and Level Global. In addition to the alleged Dell insider trades, the SEC claims members of the ring traded on inside information about chipmaker Nvidia Corp. Level Global made at least $15.6 million in illegal profits on its Nvidia trades, the agency claimed.

Peter Neiman, of Wilmer Hale, a lawyer for Diamondback Capital, declined to comment on the SEC lawsuit. MaryJeanette Dee, a lawyer for Level Global, didn’t immediately return a voice-mail message left at her office seeking comment on the suit.

During the trial last year of James Fleishman, a former executive at Primary Global Research LLC, witnesses testified that he helped employees of technology companies pass nonpublic information to his expert-networking firm’s fund manager clients. Fleishman was convicted of conspiracy charges related to insider trading.

One witness, Mark Anthony Longoria, a former Advanced Micro Devices Inc. employee, described how he passed secret tips and other information about his company to fund managers, including Adondakis.

Primary Global

Bob Nguyen, a former Primary Global analyst who pleaded guilty and agreed to cooperate with the U.S., testified at Fleishman’s trial that Tortora was a client of Fleishman’s who got nonpublic information about technology companies through the Mountain View, California-based research firm.

Daniel Devore, a former global supply manager of Dell, pleaded guilty and is cooperating with the U.S. insider-trading investigation.

The criminal case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan). The civil case is Securities and Exchange Commission v. Adondakis, 12-00409, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Saijel Kishan, Katherine Burton and Edmund Lee in New York, Janelle Lawrence in Boston and Edvard Pettersson in Los Angeles. Editors: Andrew Dunn, Peter Blumberg

To contact the reporters on this story: Patricia Hurtado in New York federal court at pathurtado@bloomberg.net; Bob Van Voris in New York federal court at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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IMF’s Strauss-Kahn Charged With Attempted Rape in New York

May 15, 2011, 1:23 PM EDT By Karen Freifeld and Sandrine Rastello

(Adds IMF comment in the 11th paragraph.)

May 15 (Bloomberg) -- Dominique Strauss-Kahn, head of the International Monetary Fund and a potential candidate for the French presidency, was charged with attempted rape and a criminal sex act on a New York hotel maid, police said.

The attack allegedly occurred yesterday against a 32- year-old female at a Sofitel hotel in midtown Manhattan, according to an e-mailed statement by the New York Police Department. Strauss-Kahn, who was taken into custody aboard an Air France flight at John F. Kennedy International Airport, also was charged with unlawful imprisonment.

Strauss-Kahn, 62, denied the charges and will plead not guilty, his lawyer Benjamin Brafman said in an e-mailed statement. He is expected to appear in a Manhattan court later today.

The alleged victim is a maid at the hotel, New York Police Deputy Commissioner Paul Browne said. The assault occurred about 1 p.m. yesterday when the woman entered the $3,000-a-night suite -- Room 2806 -- Strauss-Kahn had checked into on May 13, Browne said in a telephone interview. Strauss-Kahn is alleged to have emerged from a bathroom naked and made two attempts to forcibly have sex with the maid, Browne said.

She managed to escape from the room and notified colleagues who called the police, Browne said. When officers arrived, Strauss-Kahn wasn’t there and his mobile phone had been left behind, he said.

East Harlem Cell

Strauss-Kahn was in the first-class section of an Air France flight when it was minutes from departing. He spent the night in a cell in an East Harlem police station, where the Special Victims Unit which handles sexual crimes is located, Browne said.

Strauss-Kahn had been scheduled to attend a meeting of euro area finance ministers in Brussels tomorrow. The meeting will take place as officials discuss the possible increase of a 110- billion euro ($155-billion) loan package to Greece amid concerns the country may be unable to return to markets to finance its debt next year.

“For the fund, this is terrible news at a time when its leadership needs to portray stability, wisdom, and confidence,” Bessma Momani, a professor in the department of political science at the University of Waterloo in Canada, who specializes in the IMF and its policies, said in an e-mail.

IMF ‘Fully Functioning’

The IMF “remains fully functioning and operational” following Strauss-Kahn’s arrest, the Washington-based organization said in a statement on its website today.

“Mr. Strauss-Kahn has retained legal counsel, and the IMF has no comment on the case; all inquiries will be referred to his personal lawyer and to the local authorities,” Caroline Atkinson, the director of external relations at the IMF, said in the statement.

John Lipsky, the first deputy managing director at the IMF, is in Washington and serving as acting managing director, IMF spokesman William Murray said today. The board will meet today to discuss the situation, Murray said.

New York police said Strauss-Kahn doesn’t have diplomatic immunity. The French Foreign Ministry in Paris said the IMF will have to examine what immunity Strauss-Kahn may have. A French consul visited Strauss-Kahn in detention late yesterday, ministry spokesman Bernard Valero said in a phone interview.

French Presidency

Strauss-Kahn, a former French finance minister and member of France’s opposition Socialist Party, has consistently been among the most popular possible candidates to contest France’s 2012 presidential election, opinion polls show.

President Nicolas Sarkozy would have trailed Strauss-Kahn by 5 percentage points in the first round of the presidential voting if the election had been held at the end of last month, a CSA poll for 20 Minutes newspaper, BFM Television and RMC radio showed April 28.

Strauss-Kahn, whose term at the IMF expires next year, has in the past several months declined to say whether he was planning to run for office. The vote will be held in April and May 2012.

Any prospect of getting elected has now has vanished, said Laurent Dubois of the Paris Political Studies Institute. “It’s a tsunami,” Dubois said in a phone interview. “There is no way he can recover from this and run for president.”

Wife’s Support

This is the second time since he took the helm of the IMF in November 2007 that Strauss-Kahn has faced allegations of misconduct.

In 2008, he had a relationship with Piroska Nagy, a female economist at the IMF, who quit in August of that year. An investigation by the IMF board, released in October 2008, concluded that while he had made a “serious error of judgment,” he shouldn’t be fired.

Strauss-Kahn apologized to his staff and family, which includes his third wife, French television journalist Anne Sinclair, and four children from his previous marriages.

Sinclair today said she doesn’t “for a second” believe the accusations against her husband, Agence France-Presse reported, citing a statement from her.

Last month, officials from the Group of 24, which includes Brazil, China and Mexico, repeated a call for “an open, transparent, merit-based process” for choosing the heads of the World Bank and IMF, “without regard to nationality.” The IMF job is traditionally held by a European, while an American leads the World Bank.

Financial Crisis

Strauss-Kahn took the helm of the IMF in November 2007, following his loss in the primaries of the French Socialist Party ahead of the 2007 presidential elections.

Strauss-Kahn, who succeeded Spain’s Rodrigo Rato, has helped reshape the agency’s mission and restore its relevance. When he arrived, its emergency lending dropped to $58.7 million in 2006 from $66.4 billion in 2002. Among his first moves there was to cut about 400 jobs.

The global financial panic triggered by the bankruptcy of Lehman Brothers Holdings Inc. in September 2008 restored the Washington-based IMF’s relevance as its emergency loans soared to a record of $91.7 billion last year from $1.1 billion in 2007.

Strauss-Kahn gained backing from the Group of 20 to triple the IMF’s resources, and the group has over the past two years given the agency a host of new missions to help avoid another crisis. The IMF is helping the G-20 single out countries whose policies threaten global growth, and has also submitted proposals to fortify the international monetary system.

European Debt Crisis

More recently, he played a key role in efforts to stem the European debt crisis which started last year in Greece, with a pledge to contribute about a third of future bailouts in the region by the European Union. The IMF has co-funded aid packages to Greece and Ireland. He was due to meet with German Chancellor Angela Merkel today.

Under Strauss-Kahn, the IMF also approved a plan that will make China the third-strongest voice in the 187-member organization, founded in 1945, while weakening Europe’s influence to make room for emerging countries.

Strauss-Kahn has juggled careers as an economics professor, lawyer and Socialist politician. He holds a law degree and a doctorate in economics from the University of Paris.

In 1986, he was elected to the National Assembly and served as industry minister from 1991 to 1993. He returned to office as finance minister under Premier Lionel Jospin in 1997. He cut France’s budget deficit to below 3 percent in 1999, the level required for euro membership.

In November 1999, he resigned as finance minister after magistrates began an investigation into financial irregularities at MNEF, a French student insurance group. The probe covered an allegation that the company had paid him about $100,000 from 1994 to 1996 for legal work on a property deal that he never performed. Strauss-Kahn denied wrongdoing and was cleared by a Paris court in November 2001.

--With assistance from Albertina Torsoli, Helene Fouquet, Vidya Root and James Hertling in Paris. Editors: Sylvia Wier, David E. Rovella

To contact the reporters on this story: Karen Freifeld in Manhattan Criminal Court at kfreifeld@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Mike Hytha at mhytha@bloomberg.net; Christopher Wellisz at cwellisz@bloomberg.net

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