Two former portfolio managers have been found guilty of conspiracy and securities fraud crimes following their involvement in insider trading schemes that garnered over $72 million, according to Preet Bharara, the US Attorney for the Southern District of New York.

Todd Newman, a former portfolio manager at Diamondback Capital Management and Anthony Chiasson, a former portfolio manager and co-founder of Level Global Investors, executed trades based on non-public information about two publicly-traded technology companies - Dell and NVIDIA Corporation - that they obtained from five research analysts: Jon Horvath of Sigma Capital Management; Danny Kuo of Whittier Trust Company; Jesse Tortora of Diamondback and who worked for Newman; Spyridon Adondakis of Level Global and who worked for Chiasson, and Sandeep Goyal of Neuberger Berman.

Newman and Chiasson were arrested and charged in January, 2012, and further charged in a superseding indictment in August, the US Department of Justice said in its statement. 

According to the indictment, court documents and statements, and the evidence presented at trial, Tortora, Adondakis, Horvath, and Kuo obtained inside information from employees who worked at public companies, which they then shared with the hedge fund portfolio managers for whom they worked.

In 2008 and 2009, Tortora provided Adondakis, Horvath and Kuo with information related to Dell's quarterly earnings from Goyal, who had a source inside Dell's investor relations department, the US authority explained. Tortora shared the information with Newman, while Adondakis passed it on to Chiasson.

In exchange, Tortora arranged with Newman to pay Goyal via a bogus research consulting arrangement Diamondback made with Goyal's wife, the proceeds of which were deposited into their joint account. Diamondback paid her $75,000 and $100,000 in 2008 and 2009, respectively, even though she did not provide any research consulting services.

The inside information was used to execute illegal trades in the first and second quarters of 2008. After that, more information was obtained concerning Dell's margins that "confirmed the gross margin would be lower than market expectations," the authority said.

Overall, Diamondback made $3.8 million and Level Global made $58.5 million in illegal insider trading profits in connection with Dell's May and August 2008 earnings releases.

Meanwhile, in "multiple fiscal quarters," Kuo obtained - indirectly through a friend in exchange for cash and other items of value - confidential earnings information about NVIDIA prior to the firm's earnings announcements. He shared the information with his portfolio manager at Whittier Trust, as well as to Tortora, Adondakis, and Horvath. It was then passed on to Newman and Chiasson, who made transactions in securities of NVIDIA in advance of the firm's earnings announcement. Illegal profits of some $73,000 for Diamondback and about $10 million for Level Global were made.

Convictions

As stated in the authority's statement:

"Newman, 48, of Needham, MA, was convicted of one count of conspiracy to commit securities fraud and four substantive securities fraud counts. Chiasson, 39, of New York, NY, was convicted of one count of conspiracy to commit securities fraud and five substantive securities fraud counts. The conspiracy count carries a maximum sentence of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offense."

Both Newman and Chiasson will be sentenced on April 19.

Horvath, 43, and Kuo, 37, each pled guilty to one count of conspiracy to commit securities fraud and two substantive counts of securities fraud in September 2012 and April 2012, respectively.

Tortora, 35, Adondakis, 41, and Goyal, 40, each pled guilty to one count of conspiracy to commit securities fraud and one substantive count of securities fraud in May 2011, April 2011, and June 2011, respectively.