The SEC Wednesday charged 2 multi-billion dollar hedge fund advisory firms and 7 fund managers and analysts involved in a $78 million insider trading scheme.  The charges stem from the SEC’s ongoing investigation into the trading activities of hedge funds.  Criminal charges were filed against the same 7 individuals. SEC Findings and Allegations. A network of closely associated hedge fund traders at Diamondback Capital Management LLC (Stamford, CT) and Level Global Investors LP (Greenwich, CT) illegally obtained the material nonpublic information about Dell and Nvidia. Investment analyst Sandeep “Sandy” Goyal of Princeton, N.J., obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008.  He, in turn tipped Diamondback analyst Jesse Tortora of Pembroke Pines, Fla., with the inside information, and Tortora passed the information along to several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds. Tortora's tippees allegedly were:  (i) his portfolio manager at Diamondback, Todd Newman, who traded on the information on behalf of the Diamondback hedge funds he controlled;  (ii) Spyridon “Sam” Adondakis, Level Global analyst.  Adondakis tipped his manager Anthony Chiasson, who then traded on the inside information on behalf of Level Global hedge funds. Outside of Diamondback or Level Global, other tippees of Dell inside information were:  (i) Jon Horvath of NYC, and (ii) Danny Kuo.  Horvath made trades based on the tips that resulted in $1.4mn in illicit gains. Kuo similarly traded on the tips, though his gains were not noted.

“These are not low-level employees succumbing to temptation by seizing a chance opportunity. These are sophisticated players who built a corrupt network to systematically and methodically obtain and exploit illegal inside information again and again at the expense of law-abiding investors and the integrity of the markets.” -- Robert Khuzami, SEC Enforcement Director.

Trading in Dell generated over $62mn in illicit gains;  trading in Nvidia generated nearly $16mn.  Tipper Goyal was paid $175K in soft dollar payments - deposited in a brokerage account of an individual affiliated with him. The inside information about Nvidia Corporation’s calculation of its revenues, gross profit margins, and other financial metrics was obtained by Kuo, who passed the information along to the others named above. The SEC’s complaint seeks a final judgment ordering the defendants to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws. SEC NY Staff Credits.   Investigation, which continues, by:  Joseph Sansone, Daniel Marcus, Stephen Larson – of the SEC’s Market Abuse Unit in NY - and Matthew Watkins, Neil Hendelman, Diego Brucculeri, James D’Avino of the NY Regional Office. The FBI and U.S. Attorney’s Office for the Southern District of New York also were involved in the matter. For further details, go to: [SEC PR 12-11, 1/18/12]   and   [SEC Complaint]