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Seven charged in insider trading probe

Prosecutors say scheme involving several U.S. investment funds netted close to $62-million in trades of a single stock

Associated Press

NEW YORK -- Greed on Wall Street set a record, authorities said Wednesday as they unveiled a nearly $78-million (U.S.) insider trading case that involved at least seven financial industry professionals and included a hedge fund co-founder who triggered a single trade that earned $53-million in profits, the largest lone transaction ever prosecuted in Manhattan.

"Today's charges illustrate something that should disturb all of us: They show that insider trading activity in recent times has, indeed, been rampant and routine, and that this criminal behaviour was known, encouraged and exploited by authority figures in several investment funds," U.S. Attorney Preet Bharara told a news conference.

He said nearly $62-million was earned through tips provided by a Dell Inc. employee to a former Dell worker who spread the information among his friends in at least five investment houses, including three hedge funds.

He called it "a stunning portrait of organized corruption on a broad scale" and said it raised to 63 the number of people arrested in a government crackdown on insider trading.

So far, there have been 56 convictions.

"Each wave of charges and arrests seems to produce leads to lead us to the next phase," said FBI assistant director-in-charge Janice Fedarcyk.

She said the arrests will not be the last in a four-year-old probe dubbed "Operation Perfect Hedge."

"If you are engaged in insider trading, what distinguishes you from the dozens who have been charged is not that you haven't been caught; it's that you haven't been caught yet," she said.

The criminal complaint in U.S. District Court in Manhattan charged four of the men with conspiracy to commit securities fraud and securities fraud, among other charges.

Three analysts charged in the other documents have already pleaded guilty and are co-operating with the government.

The alleged insider trading plot was noteworthy for its size. Last month, hedge fund founder Raj Rajaratnam began serving an 11-year prison term - the longest ever given in an insider trading case - for a scheme that prosecutors said produced as much as $75-million in profits on dozens of trades over a multiyear period.

That prosecution resulted in more than two dozen convictions and led to a spinoff probe that produced even more arrests.

Mr. Bharara said the case he announced Wednesday was comparable to the one brought against Mr. Rajaratnam.

He highlighted its size, saying the co-conspirators allegedly netted more than $61.8-million in illegal profits based on trades of a single stock from 2008 through 2009. The Securities and Exchange Commission said the profits, combined with $15.7-million earned on trades involving Nvidia Corp., reached nearly $78-million.

The SEC said the case involved closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP.

Anthony Chiasson, a co-founder at former hedge fund group Level Global Investors, was among four men arrested Wednesday and faces up to 10 years in prison if found guilty. Authorities said a hedge fund analyst fed Mr. Chiasson inside information about a coming announcement of Dell's earnings for the first and second quarters of 2008, allowing him and others at his hedge fund to make approximately $57-million in illegal profits through trades. Inside information about Dell earnings resulted in $3.8-million in illegal profits at another hedge fund and $1-million in illegal profits at a third hedge fund, the complaint said. The Dell inside information also allowed an investment firm to avoid losses of approximately $78,000, authorities said.

Mr. Chiasson's lawyer, Gregory Morvillo, said his client knew the government was after him when agents raided his office 14 months ago and looks forward to defending himself.

"He didn't do anything wrong and he wants an opportunity to clear his name," Mr. Morvillo said.

Jon Horvath, an analyst at Sigma Capital Management, an affiliate of hedge fund SAC Capital Advisors in Manhattan, was arrested at his New York City home while Todd Newman, a hedge fund portfolio manager, was arrested in Needham, Mass. Analyst Danny Kuo of San Marino, Calif, also was arrested.

© 2007 The Globe and Mail. All rights reserved.

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