A couple of notoriously lax securities regulators would like to see the adjective “notoriously lax” excised from before their names. First, to Toronto, where the Ontario Securities Commission is looking longingly at Preet Bharara’s ability to command the entire FBI to stop what it’s doing to surreptitiously tape some mid-level hedge fund analyst’s phone calls.
Later this week, Anthony Chiasson, a Level Global co-founder, and Todd Newman, a former Diamondback portfolio manager, will go to trial in Federal Court for allegedly making $67 million in ill-gotten gains, based on inside information they obtained about Nvidia Corp and Dell Inc. According to U.S. Attorney Preet Bharara, Chiasson and Newman, who’ve both pleaded not guilty, were able to rack up all their profits by teaming up with a bunch of friends and forming an insider trading club, which is a lot like a book club or fight club in that they took roll, traded canapé duties, and drank Pinot Grigio, but different in that instead of discussing The Art Of Fielding or punching each other in the face, they spent every Monday night from 7 to 9 sharing material non-public information with each other.
“This case describes a tight-knit circle of greed on the part of professionals willing to traffic in confidential information,” Bharara said when the charges were announced in January. “It was a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered inside information.”
In the beginning, when the club was first formed, there was a spirit of camaraderie, as the club members happily traded tips for everyone’s mutual benefit. Unfortunately, things started to break down when some people agreed to cooperate with the government by recording their friends admitting wrongdoing, in exchange for leniency. Former Diamondback analyst Jesse Tortora, for instance, gave fellow club member Danny Kuo a call at the direction of the FBI on December 1, 2010, a conversation that Chiasson and Newman’s lawyers are trying to use as evidence that Tortora, who will be testifying against them, lacks credibility, based on the fact that when asked by Kuo if his phone was being tapped, Tortora didn’t say “Yup! Helping the Feds build a case against you, actually.”
“What’s happening, man?” Tortora asked during the call, according to a transcript prosecutors submitted to the court.
“Dude, is your phone tapped?” Kuo replied.
“Wait, is the phone tapped?” Tortora asked, adding, “Why do you ask that?”
Despite losing major points for repeating the question– you never repeat the question!– and the extremely unconvincing “Oh, why do you ask” attempt to act natural and not like he was working for the government, Tortora ultimately recovered.
After Kuo and Tortora discussed defense strategy to explain their trades were made after legitimate research, Kuo concluded the call with a final warning to Tortora about making future calls from a personal telephone, according to the transcript. “I would seriously invest in some quarters, and start calling from 7-Elevens,” Kuo said.
Over the course of the Rajat Gupta insider trading trial, attorneys for the former Goldman Sachs director have attempted to show that while their client was privy to material non-public information about, among others, Goldman and Procter & Gamble, and had an established relationship with Raj Rajaratnam, the hedge fund manager currently doing eleven years for trading on material non-public information, their client had no role in helping Raj-Raj score his ill-gotten gains. Last Monday the defense put a witness on the stand who told the jury that while once close, Gupta wasn’t even invited to Rajaratnam’s “lavish 50th birthday party that took place in Kenya,” ergo there is no way Rajat would’ve shared inside info with the guy. This week, the team was hoping to play wiretaps of conversations that took place between Rajaratnam and Goldman executive David Loeb, who they claim is the guy who actually tipped off the Galleon manager. Unfortunately:
Rajat Gupta, the former Goldman Sachs Group director accused of insider trading, lost a bid to have a jury hear wiretaps of Goldman Sachs executive David Loeb tipping Galleon Group LLC co-founder Raj Rajaratnam…Rajaratnam got some of his illegal tips from Loeb, Goldman Sachs’s head of Asia equity sales in New York, defense attorney Gary Naftalis has said in court. The lawyer has argued to the jury that the “wrong man” is on trial…“This is an attempt to prove an alternative view of the underlying facts and blatant hearsay,” Judge Rakoff told Gupta’s lawyers.
Earlier today, Raj Rajaratnam’s 7-man legal team rested its defense of the Galleon founder, accused of insider trading. This unfortunately means that the man of the hour will not take the stand, as some had hoped, but there may be a few more surprises in store.
That was one of the conversations played by the prosecution in court today, Day 3 of the Rajaratnam trial. Here was another: “We know because one of our guys is on the board,” Rajaratnam told his friend, Rajiv Goel, during an Oct. 7, 2008, call. The two men are discussing the acquisition of PeopleSupport Inc. […]
Raj Rajaratnam has maintained his innocence since he was escorted out of his Sutton Place apartment almost two months ago and apparently that’s the story he’s sticking with. His lawyers rejected federal insider trading charges this morning, for several reasons. These are our favorite: 1) The government shouldn’t have been allowed to wiretap him in […]