A former portfolio manager at the now defunct Diamondback Capital Management has been sentenced to 54 months in prison for crimes related to a multimillion dollar insider trading scheme involving computer maker Dell and hardware maker Nvidia.
Newman and co-defendant Anthony Chiasson, a former portfolio manager and co-founder of Level Global Investors, were convicted of securities fraud charges in December, following a six-week jury trial. Newman was convicted of one count of conspiracy to commit securities fraud, and four counts of securities fraud.
"With today's sentence, Todd Newman becomes the first member of this corrupt circle of friends to be punished for his conduct," U.S. Attorney Preet Bharara said in a statement. "Efforts to cheat the market by gaining an illegal edge ultimately lead to a loss of one's liberty, as it did for Todd Newman today."
Operators of Diamondback, which closed in December are also seeking restitution from Newman, saying the company was a victim of his insider-trading scheme.
Newman's lawyer wasn't immediately available for a comment on the sentencing.
Newman was part of a club of portfolio managers and analysts who obtained nonpublic information from employees who worked at public companies, the US Department of Justice said in a press release. Newman's research analyst, Jesse Tortora, along with research analysts at other investment firms shared inside information with each other, then shared it with their portfolio managers.
In 2008 and 2009, Newman received inside information from Tortora related to Dell's quarterly earnings, the DOJ said. Tortora had received the information from Sandy Goyal, an analyst who worked at another firm. Goyal had a source inside Dell's investor relations department who provided numerous updates on Dell's earnings numbers in advance the company's earnings announcements, the DOJ said.
Newman authorised payments to Goyal through a "sham" research consulting arrangement between Goyal's wife and Newman's firm, Diamondback Capital, the DOJ said.
Newman traded on the Dell inside information before the May and August 2008 quarterly earnings announcements, and earned nearly US$4 million in illegal profits for his firm, the DOJ said. Tortora also shared the Dell inside information with the other analysts, whose portfolio managers executed trades on the same inside information.
After Chiasson received the Dell inside information from his analyst Sam Adondakis, he executed trades based that earned $57 million in illegal profits for Level Global, the DOJ said.
Newman also obtained inside information concerning Nvidia's earnings, during multiple quarters, from analyst Danny Kuo, who worked at an investment firm in California, the DOJ said. Newman's trading in Nvidia shares made his firm about $73,000 in illegal trading profits for Diamondback Capital.
Chiasson made about $10 million in illegal profits for Level Global by trading on Nvidia insider information, the DOJ said.
In addition to the prison term, Newman was also ordered to forfeit $737,724 and to pay a $1 million fine.
Chiasson, of New York, was convicted of one count of conspiracy to commit securities fraud, and five counts of securities fraud. He is scheduled to be sentenced May 13.
Tortora, Goyal, Kuo and Adondakis have pleaded guilty to securities fraud charges and await sentencing.
Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is [email protected]