Defendants in investment fraud case deny insider trading

Although prosecutors are celebrating the recent conviction of two former Wall Street money managers in an insider trading case, there will likely be an appeal. Both defendants have steadfastly denied their guilt regarding the federal criminal charges brought against them and called into question the integrity of witnesses who offered testimony at the trial.

The federal government has brought a series of high-profile fraud cases against investment fund managers in recent years, following a lengthy investigation into alleged criminal activity at major banks, hedge funds and securities companies.

The case against Anthony Chiasson, the co-founder of Level Global Investors, and Todd Newman, an ex-fund manager at Diamondback Capital Management, differs in some material details from many of the cases already tried in the Federal District Court in Manhattan.

For starters, and in lieu of making a deal with prosecutors, both Chiasson and Newman have strenuously fought the charges of fraud and conspiracy against them from the outset, maintaining that they never knowingly made securities trades based on proprietary information not known to the general public.

Second, there was no wiretap evidence against the defendants, with taped recordings played for jurors featuring centrally at many of the previous trials. Instead, the government relied heavily on the testimony of two former associates, whose credibility has been strongly attacked by the defense. Those men say they passed along inside tips to Chiasson and Newman.

Those witnesses were portrayed in court as “pliant cooperators” who were working closely with prosecutors in hopes of sentencing mitigation for their own acts of wrongdoing. Both defendants told the court that they had simply assumed that the information provided by the two witnesses — traders at Level Global and Diamondback, respectively — was derived from their professional research and not from secret contacts within companies that were eventually traded on.

Sentencing is set for April 19, 2013.

Source: New York Times, “2 former hedge fund managers found guilty in insider trading case,” Peter Lattman and William Alden, Dec. 17, 2012