Insider Trading Charges Reveal Hedge Fund Industry’s “Culture of Greed”


Federal prosecutors have been putting a full court press on insider trading by hedge funds over the past four years. They recently announced the filing of criminal charges against seven more individuals, including hedge fund executives and portfolio managers, as well as guilty pleas by three cooperating defendants of Level Global Investors LP and mutual fund company Neuberger Berman Group LLC. Prosecutors say the cases show the “culture of greed” that permeates the hedge fund industry. (“Hedge Funds Prove Fertile Hunting Ground For Prosecutors,” Ian Thomas, Law 360).

Operation Perfect Hedge has resulted in criminal insider trading charges against 63 persons and has so far netted 56 convictions. Prosecutors described the defendants as a group of friends who formed “a tight-knit circle of greed.” That culture of greed has “infected the highest rungs of multiple hedge funds and become an accepted attitude towards investing,” according to the article.

These latest cases involved trading on non-public information concerning Dell, including its financial condition and details on its gross margin. The defendants include: Anthony R. Chiasson, a co-founder of Level Global Investors LP; Todd Newman, former portfolio manager of Diamondback Capital Management LLC; Danny Kuo, VP and fund manager of Whittier Trust Co.; and Jon Horvath, technology analyst at Sigma Capital Management LLC. Spyridon “Sam” Adondakis (Level Global), Jesse Tortoga (Diamondback) and Sandeep “Sandy” Goyal (Neuberger Berman) entered guilty pleas.

Preet Bahara, U.S. Attorney, said: “Today’s charges illustrate something that should disturb us all. They show that insider trading activity in recent times has indeed become rampant and routine, and that this criminal behavior was known, encouraged and exploited by authority figures in several investment firms.”

A cascade of guilty pleas to insider trading criminal charges began about two years ago in connection with the Galleon Group scheme. Founder Raj Rajaratnam was convicted and received an 11-year sentence. For the first time, prosecutors introduced wiretapped conversations in addition to evidence from cooperating defendants and documents to obtain convictions.

Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.