Added to Insider Trading Case of Anthony Chiasson & Todd Newman.

[ by Howard Haykin ]

Two well known hedge fund managers were unceremoniously added to the insider trading trials of 2 other well known hedgers.  Fund managers Anthony Chiasson and Todd Newman, who already were standing trial in Manhattan, before U.S. District Judge Richard Sullivan.

Now, David Ganek, Level Global Investors LP co-founder, and Michael Steinberg, a SAC Advisors LP fund manager, were ruled to be co-conspirators in an insider-trading scheme involving Chiasson and Newman. 

• Chiasson's is tied to Ganek - they each are co-founders of Level Global. 
• Newman is a former portfolio manager at Diamondback Capital Management LLC

• [C-I Note: Coincidentlally, On Thursday, Diamondback Capital co-founders Richard Schimel and Larry Sapanski told investors that it plans to close and wind down its funds after receiving about $520 million in redemption requests - or 26% of funds under management.]

Impact of Being Named a Co-Conspirators. The decision by the judge means that prosecutors can present evidence involving both Ganek and Steinberg at the trial, even though neither man has been charged with a crime.  In rejecting the argument from Chiasson lawyer Greg Morvillo, who said that such evidence shouldn’t be presented to the jury, Judge Sullivan said:  "I’m going to allow the Ganek evidence in.”  The judge also allowed e-mails involving Steinberg, over objections from Newman’s attorney.

Fed's Allegations Against Chiasson and Newman. Each allegedly made trades in stocks - including Dell and Nvidia based on illegal tips from company insiders which the fund managers obtained from analysts who worked for the defendants.  They have pleaded not guilty to securities fraud and conspiracy.  Six others have pleaded guilty to roles in the scheme.

Ganek, a native New Yorker, started Level Global in 2003 with Chiasson, an analyst he met at SAC Capital. Ganek's father, Howard, was a partner at money-management firm Neuberger Berman and a well-known philanthropist.  Steinberg, 40, who was put on leave in September after it became known he was an unindicted co-conspirator, has worked at SAC Capital for 15 years, the longest tenure of the 6 people who have been tied to the insider-trading probe while employed at the $14 billion hedge fund.

Ganek currently is investing his own money through his firm, Apocalypse 22 LLC in New York, which has about half a dozen employees,  His lawyer, John Carroll, said in a statement that there’s no evidence Ganek knew about any inside information. 

Nevertheless, Sullivan cited e-mails involving Ganek, Chiasson, and ex-Level Global analyst Spyridon “Sam” Adondakis in which the men discussed information that prosecutors allege were illegal tips on Dell and Nvidia.   Adondakis was the 3rd cooperating witness to testify at the trial in a group that also included Jesse Tortora, a former analyst who worked for Newman.  The judge said that “Ganek is expressing awareness of Adondakis’s Dell contact,” referring to one e-mail exchange.  "The judge added that statements made by Ganek and his conversations during this time do suggest that he understands Adondakis is not just any analyst crunching numbers."

While attorney Morvillo tried in vain to convince the court that there’s no evidence backing prosecutors’ claim that Ganek is a co- conspirato,
Assistant U.S. Attorney Antonia Apps said Ganek knew Adondakis was getting inside tips.  "There is substantial circumstantial evidence to support the inference, based on the preponderance standard, that Mr. Ganek did in fact that know Mr. Adondakis’s information came from sources inside those companies, and accordingly, Mr. Ganek is a co-conspirator"  - that according to her 12/4/ filing.

Stay tuned.  Judge Sullivan instructed jurors in the Newman and Chiasson trial to return to court on Monday, 12/10.  The case is U.S. v. Newman, 12-00121, U.S. District Court, Southern District of New York (Manhattan).

For further details, go to:  [Bloomberg, 12/6/12].