7 charged in 'record insider trade'

US Attorney Preet Bharara Greed on Wall Street set a new record, US government authorities said, as they unveiled a massive insider trading case and charged a hedge fund co-founder with engineering a transaction that earned a staggering 53 million dollars (£34.4 million) in profits.

The illegal trade - the largest transaction prosecuted in Manhattan - was part of a 78 million dollar (£50.6 million) scheme involving at least seven financial industry professionals, US Attorney Preet Bharara said.
Of the 78 million, nearly 62 million dollars (£40.2 million) was earned through tips provided by a Dell employee to a former Dell worker who spread the information among his friends at at least five investment houses, including three hedge funds.

The criminal complaint in US 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.

Securities and Exchange Commission (SEC) enforcement director Robert Khuzami said it was disturbing that the case involved high-level executives at "some of the largest and most sophisticated hedge funds in the country".

He said there was nothing wrong with fast-trading hedge funds but they were already characterised by a lack of transparency and could pose a "grave threat to the integrity of the markets and the level playing field that is the foundation of those markets" when they used their considerable market power to influence those who possessed inside information.

The SEC said the case involved closely associated hedge fund traders at Diamondback Capital Management and Level Global Investors. Anthony Chiasson, a co-founder at former hedge fund group Level Global Investors, was among four men arrested. He surrendered to the FBI in New York.

In court papers, Chiasson was credited with a starring role in the securities fraud. Authorities said a hedge fund analyst fed Chiasson inside information about an upcoming announcement of Dell's earnings for the first and second quarters of 2008, allowing Chiasson and others at his hedge fund to make about 57 million dollars in illegal profits through trades.

Inside information about Dell earnings resulted in 3.8 million dollars (£2.4 million) in illegal profits at another hedge fund and one million dollars (£649,000) in illegal profits at a third hedge fund, the complaint said. The Dell inside information also allowed an investment firm to avoid losses of about 78,000 dollars (£50,600), authorities said.

Bail for Chiasson was set at 2.5 million dollars (£1.6 million) after assistant US attorney David Leibowitz told a magistrate judge at Chiasson's initial court appearance in Manhattan that the allegations against him were "staggering" and if proved successfully, could result in a prison sentence of at least 10 years. He said the 53 million dollars Chiasson earned for his hedge fund by shorting Dell stock on early word that its earnings would disappoint was the largest illegal trade cited in a criminal case in federal court in Manhattan.
© 2012 Press Association
Read Full Story