Convicted Insider Traders Probably Regretting Association With Group Calling Itself "Fight Club"

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It gives me no particular pleasure to update the ol' insider trading sentencing chart every time a new person is convicted of insider trading, but I view it as a public service for the less instinctually law-abiding among our readers and here we are:

After three days of deliberations, a jury convicted Anthony Chiasson, a co-founder of Level Global Investors, and Todd Newman, a former portfolio manager at Diamondback Capital Management. The two had denied charges that they participated in a conspiracy that made more than $70 million illegally trading technology stocks.

Anyway chart (background here):

As, like, half of Manhattan gets convicted of insider trading, this chart has gotten a bit raggedy; various forms of cooperation or sympathy or silliness of the sentencing guidelines will move you off the predicted lines. The model spit out 8 years for Rajat Gupta and no one really thought that would happen; he ended up getting two. Zero, for particularly compelling cooperation/sympathy, is a disproportionately popular number.

So the quants at Dealbreaker Labs have refined the chart a bit to reflect not only the two main "official" variables that affect insider trading sentences - amount of money and whether you went to trial - but also the most important unofficial variable, which is: who is the particular person sentencing you? Turns out that, for instance, Gupta's judge, Jed Rakoff, is an equal-opportunity non-fan of the financial industry and its regulators, who in sentencing Gupta "criticized the advisory federal sentencing guidelines, deriding them as 'the mirage of something that can be obtained with arithmetic certainty.'"

And then there are the people who like arithmetic certainty! Judge Richard J. Sullivan, who ran Chiasson and Newman's trial and will sentence them, is pretty by the book. His sentences are the big purply (plea) or pinky (trial) boxes in the scatterplot, and other than Gautham Shankar, who got probation after wearing a wire to catch other insider traders, everyone's been at or above the line predicted by the Official Dealbreaker Insider Trading Sentencing Model. Which makes the model look good, but - given the supposed $70mm of insider trading profits that they made - is not so nice for Chiasson's and Newman's prospects.

2 Former Hedge Fund Managers Found Guilty in Insider Trading Case [DealBook]
Earlier: Accused Insider Traders Already Guilty Of One Thing

Related

Members Of Insider Trading "Club" Were Good At Obtaining Material Non-Public Information, Not So Good At Playing It Cool On Conversations Recorded By The Feds

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. Hedge Fund Founder Faces Jury as FBI Raids Yield Trial [Bloomberg]