Hedge fund in multimillion dollar settlement over Dell 'insider trading'

Diamondback claims inappropriate conduct of two employees as it pays multimillion dollar settlement

Diamondback Capital Management, a large US hedge fund managing billions of dollars of assets, has settled a groundbreaking FBI case around the alleged $62 million (£40 million) insider trading of Dell and Nvidia stock.

The hedge fund will immediately pay $9 million to authorities as part of the agreement, which was reached in a New York court, and will claim serious wrongful conduct by two senior former employees.

The alleged criminal operation, involving trades of Dell and Nvidia shares based on private company information, is being described by authorities as one of the largest ever insider trading rings, and involves former employees at several hedge funds, as well as at Dell.

Todd Newman, a senior manager at Diamondback, was arrested in Boston last week. Jesse Tortura, a former analyst at the company, was also implicated in the case by prosecutors. The two continue to face securities fraud charges.

Diamondback itself will no longer face prosecution. The company has agreed to sign an official statement detailing the "wrongful conduct" of two of its employees.

Other individuals facing charges include Anthony Chiasson, a co-founder at Level Global investors, Jon Horvath, an employee at Sigma Capital Management, and Danny Kuo of Whittier Trust. All three firms are large hedge funds.

Level Global allegedly made $57 million from a tip ahead of Dell's results, according to the FBI, which would be the largest single profit in history from insider information. None of the companies facing questions has commented.

Two former Dell employees - an unnamed employee in the company's investor relations department from 2007 to 2009, as well as Sandeep Goyal, who worked at its US headquarters between 2006 and 2007 - were also said to be part of the alleged scam.

Some 56 traders and associates have been convicted in the "Operation Perfect Hedge" investigation, of which this case is the largest known part. The investigation also included the high profile insider trading conviction of Galleon hedge fund co-founder Raj Rajaratnam - after he traded extensively in AMD, IBM, Intel and 3Com stock.

George Canellos, director of the SEC's New York office, said the authority believes the settlement by Diamondback "appropriately sanctions the misconduct" while demonstrating the company's assistance in the police investigation.

Diamondback, which was raided over a year ago by the FBI as part of the investigation, has not provided further comment. The other hedge funds continue to face questions.

Dell said in a statement that it "has cooperated with government authorities". It added: "All Dell employees are required annually to complete training on the company's Code of Conduct, which includes a section on insider trading. Violations of these policies are treated seriously, and violations result in disciplinary action up to and including termination."

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