Prepared Remarks of Assistant Director in Charge Janice K. Fedarcyk on Insider Trading Arrests
|FBI New York January 18, 2012||*Main Press Line 212-384-2100|
Today’s arrests, and the unsealing of charges against three cooperating co-defendants, are just the latest public developments in “Operation Perfect Hedge,” the FBI’s systematic targeting of insider trading in the hedge fund industry that began more than four years ago and resulted in a first wave of arrests more than two years ago.
The schemes described in the criminal complaint were all variations on the theme of trafficking in, and trading on, material non-public information.
Seven men, connected by friendship or business association, directly or through intermediaries, exploited quarterly earnings data from Dell or Nvidia in advance of its public disclosure. In essence, they knew ahead of time which way the stock in Dell or Nvidia would move once quarterly earnings figures were officially announced.
When you have the answer sheet beforehand, it’s pretty hard not to ace the test. But cheating on the test and getting away with cheating on the test are two different things.
The evidence delineated in the complaint consists of court-authorized interceptions of e-mails, instant messages, and phone calls among the defendants and others; as well as material obtained in the execution of several search warrants last year; and information from three of the defendants who chose to cooperate with the FBI.
Sandy Goyal once worked at Dell. Subsequent to that, he worked at Investment Firm 1 with Jesse Tortora. Sam Adondakis and Tortora were friendly with defendants Danny Kuo and Jon Horvath. This was the crux of the conspiracy that resulted in over $60 million in aggregate illegal profits or losses avoided at Hedge Funds A, B, and C, and Investment Firm D.
Goyal had the direct connection to the Dell Insider. Goyal passed along Dell quarterly earnings information to Tortora and defendant Todd Newman at Hedge Fund A. In compensation for this, Tortora and Newman arranged to pay Goyal a total of $175,000 in 2008 and early 2009, using “soft dollars” and an intermediary to conceal the deal. Hedge Fund A reaped $3.8 million in illegal profits from advance knowledge of positive Dell news for the first quarter of fiscal year 2008 and negative news for the second quarter.
Tortora provided Dell’s quarterly earnings numbers to Adondakis, an analyst at Hedge Fund B, and he passed them along to co-worker and defendant Anthony Chiasson. Fund B made $4 million in illegal profits trading on the first-quarter information, and $53 million in illegal profits by shorting Dell stock and buying put options based on the anticipated second-quarter report.
Tortora provided the Dell second-quarter numbers to Horvath at Hedge Fund C, and Horvath arranged for shorting Dell stock and buying put options, making $1 million profit.
Tortora provided the Dell second-quarter numbers to Kuo at Investment Firm D, enabling him to avoid $78,000 in losses.
Kuo had an insider at Nvidia, and he provided that information to his friends Tortora, Adondakis, and Horvath.
Today’s charges are based on evidence obtained in the course of the overall “Perfect Hedge” initiative. Each wave of charges and arrests seems to produce leads to the next phase.
More than 60 people have been charged in “Perfect Hedge” to date, and this initiative is far from over. If you are engaged in an insider trading conspiracy—passing inside information on to others, or receiving it—what distinguishes you from the dozens who have been charged is not that you haven’t been caught; it’s that you haven’t been caught yet.
I want to commend Preet Bharara and the securities fraud prosecutors in Southern District, especially Assistant U.S. Attorneys Antonia Apps, Reed Brodsky, David Leibowitz, and Richard Tarlowe, without whom we would be only half a team.
Thanks as always to Rob Khuzami and the staff of the Division of Enforcement of the Securities and Exchange Commission.
And I would especially like to commend the continued dedication and determination of FBI Special Agents David Makol and James Hinkle, their colleagues on Squad C-35, and their supervisor David Chaves.