Hedge fund advisory firm Level Global Investors has agreed to settle all charges brought by the Securities and Exchange Commission, and will pay more than $21.5 million. This will settle charges that the firm’s co-founder, who also served as a portfolio manager, and its analyst engaged in repeated insider trading in the securities of Dell Inc. and Nvidia Corp. In January 2012, the SEC filed insider trading charges against Level Global, the firm’s co-founder Anthony Chiasson, a former analyst Sam Adondakis, and six other Defendants, including five investment professionals and the hedge fund advisory firm Diamondback Capital Management. As has become par for the course in these settlements, Level Global neither admitted nor denied the allegations made by the SEC.
The SEC’s complaint, filed in federal court in Manhattan, alleged that Adondakis was a member of a group of closely associated hedge fund analysts who illegally obtained highly sensitive information regarding the financial performance of Dell and Nvidia before this information was made public. The illegally obtained information involved Dell and Nvidia’s revenues and profit margins and sometimes indicated that the tech companies’ quarterly results would differ significantly from the consensus expectations of Wall Street analysts. During 2008 and 2009, Adondakis passed the information on to Chiasson, who used it to execute trades on behalf of hedge funds managed by Level Global and reap millions of dollars in illegal profits.
In 2011, following news reports of the government’s investigation, Level Global, which had once managed as much as $4 billion, announced that it would close its business and begin returning money to its investors. It is presently in the process of winding down its business. Sanjay Wadhwa, of the SEC’s New York Regional Office, had this to say:
The insider trading at Level Global was hardly an isolated event – it occurred repeatedly, and involved multiple companies and multiple quarterly announcements. This settlement serves as another reminder that the SEC will hold hedge fund managers accountable when their employees violate the securities laws.
The settlement with Level Global, which is subject to court approval, requires the firm to disgorge $10,082,725 in fees that it reaped from the alleged insider-trading scheme, to pay prejudgment interest of $1,348,824, and to pay a penalty of $10,082,725. Level Global has also agreed to the entry of an order permanently enjoining the firm from future violations of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5, and Section 17(a) of the Securities Act of 1933.
Adondakis previously pled guilty to parallel criminal charges and agreed to a settlement with the SEC in which he admitted liability for insider trading. The SEC is continuing to pursue its insider trading claims against the firm’s co-founder Chiasson, who was convicted in December 2012 of securities fraud in a parallel criminal proceeding.
Source: Corporate Crime Reporter
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