Seven Charged In Dell, Nvidia Insider Trading Scheme

Seven investment professionals, including a former Dell employee, have been charged with insider trading in a scheme that allegedly netted more than $61.8 million in illegal profit, according to the FBI.

The scheme allegedly involved employees at three hedge funds and two other investment firms, who used non-public information regarding Dell and Nvidia to profit from stock trading.

Charged for their alleged involvement in the scheme were Todd Newman, a former portfolio manager at a Connecticut-based hedge fund; Anthony Chiasson, a former portfolio manager and co-founder of a Manhattan-based hedge fund; Jon Horvath, a research analyst and fund manager for another New York-based hedge fund; Danny Kuo, a research analyst and fun manager at an investment firm with offices in California and Nevada.

Three others entered guilty pleas: Jesse Tortora, a former research analyst at the first hedge fund; Spyridon "Sam" Adondakis, a research analyst at the second hedge fund; and Sandeep "Sandy" Goyal, a former Dell employee and research analyst at the first investment firm.

The hedge funds and investment firm company names were not named by the FBI in its release.

According to the FBI, Goyal received insider information from a source inside Dell's investor relations department regarding Dell revenue and gross margins for the second quarter of 2008 in July 2008, prior to the company's financials announcement on Aug. 28. and provided it to others in the circle.

In exchange for the information, Tortora admitted to arranging with Newman to pay Goyal through a sham consulting arrangement into a joint bank account with another unnamed individual. Four payments of $18,750 were made in 2008 and the individual also received a bonus of $100,000 in January 2009.

Dell confirmed that Goyal and the unnamed insider are former employees and that the company has cooperated with federal authorities in the investigation.

"If the allegations are accurate, the action was a clear violation of Dell’s policy regarding disclosure of material, non-public information," a Dell spokesman said in a statement.

The insider information was used to execute illegal trades in the first two quarters of 2008, according to the FBI.

"The charges unsealed today allege a corrupt circle of friends who formed a criminal club whose purpose was profit and whose members regularly bartered lucrative inside information so their respective funds could illegally profit. And profit they allegedly did—to the tune of more than $61 million on illegal trades of a single stock—much of it coming in a $53 million short trade," said Manhattan U.S. Attorney Preet Bharara, in a statement. "Here, The Big Short was The Big Illegal Short. We have demonstrated through our prosecutions that insider trading is rampant and has its own social network, a network we intend to dismantle. We will be unrelenting in our pursuit of those who think they are above the law."

In addition to Dell, Kuo allegedly obtained confidential financial information about Nvidia and provided it to Tortora, Adondakis and Horvath.

Next: FBI Inquiries 'Far From Over'

Newman, Chiasson, Horvath and Kuo are each charged with one count of conspiracy to commit securities fraud and one count of securities fraud.

Tortora, Adondakis and Goyal each pled guilty in 2011 to one count of conspiracy to commit securities fraud and one count of securities fraud.

Since commencing Operation Perfect Hedge, the FBI has arrested more than 60 people in insider trading scams and the initiative "is far from over," said FBI Assistant Director in Charge Janice K. Fedarcyk.

"If you are engaged in insider trading, 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," Fedarcyk said in a statement.