DealBook: On Witness Stand, Former Analyst Describes Insider Trading Scheme

Mike Segar/Reuters and Charles Krupa/Associated PressAnthony Chiasson, left, a co-founder of the Level Global Investors hedge fund, and Todd Newman, once a portfolio manager.

In 2008, Jesse Tortora, a junior tech-stock analyst, made $2.25 million, his best year at the hedge fund Diamondback Capital Management.

“It was a very good job,” said the defense lawyer Stephen Fishbein during his questioning of Mr. Tortora in Federal District Court in Manhattan on Thursday.

“How would you define that?” Mr. Tortora asked.

“You liked being there,” Mr. Fishbein responded.

“No, I did not,” Mr. Tortora snapped back.

The fresh-faced Mr. Tortora, 35, also did not like being at the criminal trial of Todd Newman, his former boss at Diamondback, and Anthony Chiasson, the co-founder of the hedge fund Level Global.

But he sat in the witness box over two days this week, testifying dutifully as one of the government’s key cooperators in the case. Federal prosecutors have accused Mr. Newman and Mr. Chiasson of being the most senior members of an eight-person insider trading conspiracy that earned about $70 million by illegally trading technology stocks. Both men have denied they were part of any conspiracy and say that their underlings are using them as scapegoats to curry favor with the government and avoid prison.

Mr. Tortora, who has pleaded guilty along with five others, is the centerpiece of the government’s case against Mr. Newman. On Thursday morning, Mr. Totora described in his direct examination how Sandeep Goyal, a former tech-stock analyst at Neuberger Berman, fed him secret financial information about the computer maker Dell that he then passed on to Mr. Newman. Mr. Tortora said that Mr. Newman knew the information was confidential.

In perhaps the most incriminating part of Mr. Tortora’s testimony, he told the jury how Mr. Newman helped facilitate $175,000 in “consulting payments” to Mr. Goyal’s wife. Mr. Goyal had been unable to accept the payments directly because he was not allowed to receive outside compensation while employed at Neuberger.

During cross-examination, Mr. Fishbein, a lawyer for Mr. Newman, sought to portray Mr. Tortora as a disgruntled employee with an ax to grind. When the F.B.I. knocked on his door in late 2010, Mr. Tortora had already left the firm and had every incentive to throw his boss under the bus to protect himself, Mr. Fishbein suggested.

“Isn’t it true you understood that your ticket to freedom was to give evidence against Todd Newman?” Mr. Fishbein asked.

“No, that’s untrue,” Mr. Tortora said.

Mr. Tortora said that he resigned from Diamondback in April 2010 after the firm refused to give him “his own book” – a term for letting him manage his own pool of money. He also said that Mr. Newman was an “abusive boss” and that their relationship had deteriorated by the time he left.

There was testimony about a nasty phone exchange between Mr. Tortora and Mr. Newman around his departure date. Mr. Tortora acknowledged that he told Mr. Newman during the call, “You’re going to have to see me at conferences.”

Mr. Fishbein suggested that Mr. Tortora meant that as a physical threat, but Mr. Tortora denied that he meant it in that way.

The defense also tried to attack Mr. Tortora’s credibility by focusing on a disputed expense report that Mr. Tortora had submitted around the time he left. Mr. Tortora had claimed about $7,500 for a business trip to San Francisco, but the fund told him that it was only going to cover $6,100. Mr. Tortora acknowledged that his girlfriend traveled with him, accompanying him on many of his work excursions.

“We cannot reimburse you for magazines such as Life & Style and OK magazine,” wrote a Diamondback official. “Lastly, we do not reimburse for movies.”

Mr. Tortora said that Diamondback had never before had a problem with his expenses, but in the end agreed to reimburse the fund. “In the end, I accepted it and moved on,” he said.

After Mr. Tortora agreed to cooperate with the authorities, he recorded conversations with several of his friends in an effort to entrap them, he acknowledged. On one those calls, Mr. Tortora told Danny Kuo, a Los Angeles-based tech-stock analyst who has since pleaded guilty, that the government wanted to make Mr. Newman “the fall guy” and they wanted his help investigating him. Mr. Tortora testified that he was sticking to a “fictional” script fed to him by the F.B.I.

“You pushed the blame to Todd Newman,” Mr. Fishbein said. “You made stuff up, didn’t you?”

“I told the truth,” Mr. Tortora said.

As with nearly every trial, the testimony was plodding at times. The tedium apparently led a juror to request an extra jolt of caffeine. As Judge Richard J. Sullivan, who was overseeing the trial, excused the jury for their 10-minute afternoon break, he told Juror No. 1 that he had fulfilled his request to stock the jury room with Red Bull.

The trial resumes on Monday with more cross-examination of Mr. Tortora.

F.C.C. Describes 911 and Cellphone Problems

The Federal Communications Commission also said “a small number” of 911 service centers — the sites that receive emergency calls and link them with first responders — also were out of service after the storm, the second time in recent months that 911 service has suffered weather-related failures. Many emergency calls were rerouted, officials said, to call centers that survived the storm.

“Our assumption is that communication outages could get worse before they get better,” Julius Genachowski, the F.C.C. chairman, told reporters in a conference call Tuesday afternoon. “I want to emphasize that the storm is not over,” he said, referring to both the weather and the facilities.

Verizon Wireless said Wednesday that 6 percent of its cell sites remained down in storm-affected areas, although all of its switching and data centers “are functioning normally.” T-Mobile issued a statement saying that roughly 20 percent of its network in New York City was out of service, as was up to 10 percent of its network in Washington.

AT&T declined to specify the status of its systems on Wednesday. All of the companies said they were working to assess and repair the damaged networks.

Some of the emergency calls that were affected by the storm were rerouted to new 911 service centers without electronic location information, which tells the operator where the call originated. This means public safety officials must rely on callers for details about where an emergency was occurring, Mr. Genachowski said.

F.C.C. officials declined to identify where the affected 911 centers were located, or which phone companies were responsible for servicing them.

Roughly one-quarter of the residents of the 10 states that were affected by the storm also lost cable television and broadband Internet service, killing most or all of the connections that millions of consumers were relying on for information.

Few radio broadcasters were affected by the storm, said David Turetsky, the chief of the F.C.C.’s public safety and homeland security bureau. Three stations received F.C.C. permission to broadcast at higher power levels, and one station relocated its transmissions on the broadcast spectrum because of damage to its radio tower.

The F.C.C. activated its disaster reporting information system during the storm, a voluntary system through which wireless, landline, broadcast, satellite and cable TV companies can report the status of their systems. Based on those reports, and its own on-the-ground assessments, the F.C.C. knows where the problems are and which companies are responsible for addressing them, but officials declined on Tuesday to make that information public.

In its manual for use of the disaster system, the F.C.C. says that the information “is sensitive for national security and/or commercial reasons” and therefore will be treated as “presumptively confidential.”

Similar storm-related 911 failures have been the subject of previous F.C.C. scrutiny. The commission is currently in the middle of a formal inquiry into the causes of widespread failures of 911 networks in June resulting from the derecho, a violent wind and thunderstorm.

“From isolated breakdowns in Ohio, Kentucky, Indiana, and Pennsylvania to systemic failures in Northern Virginia and West Virginia, it appears that a significant number of 911 systems and services were partially or completely down for several days,” the F.C.C. said in statements related to that inquiry.

Roughly one million people in Northern Virginia were affected by 911 failures in June, which primarily occurred in systems managed by Verizon. Company officials said before this week’s storm that they had made a number of improvements to their emergency systems and backups that would help them maintain service during the storm.

The commission collected public comments on the 911 failures over the summer, but it has yet to report its findings.

Brian X. Chen contributed reporting from New York.