DealBook: Former SAC Trader Found Guilty of Insider Trading

DealBook: Prominent Doctor Said to Be Tied to Insider Trading Case at SAC

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DealBook: Steven Cohen Declines to Testify in SAC Insider Case

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DealBook: Fund Manager Settles Case in Dell Insider Trading Ring

Paul Sakuma/Associated PressDell’s offices in Santa Clara, Calif.

In August 2008, in the midst of the financial crisis, a large bet that the shares of Dell would drop proved highly lucrative for a tight-knit group of traders. It has also proved to be bountiful for the government in its campaign to root out insider trading on Wall Street.

On Friday, Victor Dosti, a former portfolio manager at the Whittier Trust Company, settled a civil action brought by federal securities regulators who accused him of illegally trading Dell shares. He is the ninth person charged by the government related to the Dell trade.

Mr. Dosti and Whittier, a money manager based in South Pasadena, Calif., agreed to pay about $1.7 million to resolve the lawsuit, which was filed by the Securities and Exchange Commission in Federal District Court in Manhattan. The S.E.C. said that Whittier earned profits and avoided losses of about $725,000 by trading on illicit tips about Dell as well as the technology companies Nvidia and Wind River Systems.

The secret information was funneled to Mr. Dosti by Daniel Kuo, a former analyst at Whittier who pleaded guilty last year to criminal charges that he was part of the insider-trading scheme of traders, analysts and corporate insiders who earned about $70 million in profits by trading on secret information that came from inside Dell and other companies.

“Time and again, Dosti received what he knew was inside information from Kuo and traded on it to generate illicit gains,” Sanjay Wadhwa, senior associate director of the S.E.C.’s regional office in New York, said in a statement.

Gary Lincenberg, a lawyer for Mr. Dosti, declined to comment. Robert Anello, a lawyer for Whittier, said that his client was glad to have the matter behind it and that “the conduct engaged in by two former employees is completely contrary to the core values of this organization.”

Two of the nine individuals tied to the Dell insider-trading ring are former employees of SAC Capital Advisors, the giant hedge fund that is at the center of the government’s investigation. Michael Steinberg, a longtime SAC trader, was charged as part of the ring that illegally traded Dell and Nvidia. His name first surfaced last fall, when Jon Horvath, a former SAC analyst, pleaded guilty to insider trading in the two technology stocks and said he shared the information with Mr. Steinberg.

Mr. Steinberg has pleaded not guilty and is scheduled to stand trial on Nov. 18.

Whittier fired Mr. Dosti, 49, last January after federal prosecutors first brought charges related to the Dell and Nvidia trades. Mr. Dosti, an Albanian immigrant, received an M.B.A. from the University of Chicago and worked at Northern Trust and Citigroup before joining Whittier about a decade ago.

DealBook: SAC Says It Will Curb Cooperation With Insider Inquiry

9:00 p.m. | Updated The government’s insider trading investigation of the giant hedge fund SAC Capital Advisors entered a more contentious phase this week, with criminal authorities issuing a new round of subpoenas requesting information about the firm’s activities, according to lawyers briefed on the case.

The requests, which numbered more than a dozen, indicate that federal prosecutors and the F.B.I. are intensifying their efforts to build a case against the firm and its executives, including its billionaire founder, Steven A. Cohen, 56.

The government’s newly aggressive posture led to an unusual response from the hedge fund. On Friday, SAC told its investors in a letter that it was no longer fully cooperating with the investigation.

“While we have in the past told you of our cooperation with the government’s investigation, our cooperation is no longer unconditional,” the letter said.

Neither the firm nor Mr. Cohen has been charged with wrongdoing. The hedge fund owner has maintained that he has behaved appropriately at all times.

Still, over the last five years, SAC has been in the cross hairs of the government’s crackdown on illegal trading on Wall Street.

Nine former or current SAC employees have been tied to insider trading while at the fund; four of them have pleaded guilty. Earlier this year, SAC agreed to pay $616 million to settle two civil cases brought against it by the Securities and Exchange Commission, a move seen inside the firm as a major step toward resolving its role in the investigation.

But in recent days, the government signaled that its inquiry into the fund was far from over, if not escalating. The subpoenas asked for numerous trading records related to the buying and selling of specific stocks, as well as other documents, according to the lawyers.

The latest requests were frustrating for Mr. Cohen and his legal team, which led to the decision to take a tougher stand, lawyers briefed on the case said. SAC objected to certain aspects of the subpoenas.

As a result of the new requests, the fund decided that it could no longer provide its investors with updates on the inquiry.

A spokesman for SAC, Jonathan Gasthalter, declined to comment.

“In the past we have tried to be as transparent with you as possible about the state of the investigation, while balancing our desire for transparency with the need to keep the details of a sensitive investigation confidential,” SAC said in the letter sent on Friday to investors.

“During this period, however, the need for confidentiality will limit our ability to share with you details about how the investigation is progressing,” the letter said.

While SAC’s letter highlighted the more aggressive position taken toward the government, the fund also sought to allay its investors’ concerns about the state of the investigation. The firm said it expected that there would be “substantially more clarity” as to the outcome of the investigation in the coming months. It also said that its changed posture toward the inquiry would “not have a financial impact to our funds.”

SAC, which is based in Stamford, Conn., is fighting to keep its clients from withdrawing money from the $15 billion fund. It recently gave its investors an extension to decide whether to withdraw money, pushing back the deadline to June 3 from May 16. Earlier in the year, investors withdrew $1.7 billion from the fund, an amount that equals about 25 percent of the hedge fund’s outside money. (The balance of the fund, which is about $9 billion, consists mostly of Mr. Cohen’s fortune.)

The subpoenas and SAC’s response come as the fund awaits final resolution of the larger of the two civil settlements it struck with the S.E.C. earlier this year. In that case, SAC agreed to pay $602 million to resolve charges related to illegal trading in the pharmaceutical stock Elan and Wyeth. It neither admitted nor denied wrongdoing as part of the settlement.

The settlement requires the approval of the federal judge presiding over the case, Victor Marrero. Last month, he approved the agreement, but conditioned it on a pending decision from a federal appeals court in a case involving Citigroup. Judge Marrero raised concerns with the “neither admit nor deny” language that the regulatory agency includes in many of its settlements, an issue that the appeals court was expected to address in the Citigroup case.

Another concern for the hedge fund involves the two former SAC employees under indictment for insider trading: Mathew Martoma and Michael S. Steinberg. They are fighting the charges, but if either decided to plead guilty and cooperate, they could potentially help the government build its case.

Earlier this month, a judge set Mr. Steinberg’s trial for Nov. 18. Mr. Martoma, who was at the center of the Elan and Wyeth trades, has yet to receive a trial date.

Mr. Cohen directly participated in the questionable Elan and Wyeth trades, which were made in July 2008. Under the five-year statute of limitations for insider trading crimes, the authorities would have to file either criminal charges or a civil case against the hedge fund billionaire related to those trades by mid-July. The government has not said that Mr. Cohen knew any confidential information when he made those trades.

Despite the multitude of distractions, the SAC founder rubbed elbows with celebrities and socialites on Monday night at the Robin Hood Foundation’s annual gala in Manhattan. The benefit, which featured performances by Bono, Sting and Elton John, raised $72 million to fight poverty.

DealBook: Former BlackRock Manager Arrested in Insider Trading Inquiry

Mark Lennihan/Associated PressThe headquarters of BlackRock, the giant money manager, in New York.

LONDON – Mark Lyttleton, a former BlackRock fund manager, has been arrested in connection with an insider trading investigation in Britain, according to two people briefed on the matter.

The arrest on April 30 of Mr. Lyttleton, 41, and an unidentified 37-year-old woman comes as the British financial regulator, the Financial Conduct Authority, continues to clamp down on market abuse in London’s financial district after a series of recent scandals.

Mr. Lyttleton, who oversaw the firm’s underperforming UK Dynamic and BlackRock UK absolute alpha funds, left the firm on March 28 and has not been charged with any wrongdoing. His departure from BlackRock was not connected to the regulatory investigation, the people added, who spoke on the condition of anonymity because they were not authorized to speak publicly.

Under British law, individuals can been arrested as part of continuing investigations but they may not eventually face prosecution for potential wrongdoing. Any prospective indictments in the case would not be issued until late in 2013, at the earliest, one of the people said.

The Financial Conduct Authority of Britain said this month that two individuals had been questioned about insider trading and market abuse, and several homes and offices had been searched in Switzerland in connection with the investigation.

BlackRock confirmed on Tuesday that a former employee had previously been arrested by the City of London police on suspicion of insider trading. It said the accusations were related to personal activities by the individual and were not connected with dealings related to the firm’s clients.

“The alleged behavior is totally contrary to the firm’s principles and values,” BlackRock said in a statement on Tuesday. “The firm has been aiding and will continue to aid the authorities with their investigations.”

Spokesmen for the Financial Conduct Authority and BlackRock declined to comment further on the investigation. A representative for Mr. Lyttleton was not immediately available for comment.

Since the beginning of the financial crisis, British authorities have tried to shake off a reputation for light regulation by aggressively tackling market abuse allegations.

Over the last four years, the Financial Services Authority, the predecessor of the Financial Conduct Authority, successfully prosecuted 23 individuals for insider trading. Seven other people are facing prosecution on similar charges.

DealBook: Ex-Hedge Fund Manager Sentenced in Insider Trading Case

Mike Segar/ReutersAnthony Chiasson, center, a founder of Level Global Investors, was sentenced to six and a half years for illegally trading tech stocks.

During the sentencing of the former hedge fund manager Anthony Chiasson on Monday, Judge Richard J. Sullivan marveled at his prodigious wealth, ticking off the annual income listed on his tax returns. “$16 million, $10 million, $23 million,” he said.

“That’s just staggering,” the judge said. “It’s hard to imagine why someone would risk all that to engage in a crime like this.”

The crime is insider trading, and Judge Sullivan, of Federal District Court in Manhattan, handed down one of the stiffest sentences yet in the government’s vast campaign to root out wrongdoing on Wall Street trading floors. He sentenced Mr. Chiasson, a founder of Level Global Investors, to six and a half years in prison after a jury found him guilty last December of illegally trading technology stocks.

“This kind of conduct can’t go unpunished,” Judge Sullivan said.

Mr. Chiasson, 39, who did not address the court, was ordered to pay a $5 million fine and forfeit illegally obtained proceeds of as much as $2 million. He must report to the Federal Bureau of Prisons in 90 days.

His legal team, led by Reid H. Weingarten of Steptoe & Johnson and Gregory Morvillo of Morvillo Law, is appealing his conviction. They have brought on Mark F. Pomerantz, a lawyer at Paul, Weiss, Rifkind, Wharton & Garrison, to handle the appeal.

Mr. Chiasson was tried last year alongside Todd Newman, a former portfolio manager at Diamondback Capital Management. The government accused them of being the two most-senior Wall Street traders in an eight-member “criminal club” that made $72 million in profits by trading shares of Dell Inc. and Nvidia based on corporate secrets obtained from inside those companies.

After a six-week trial, a jury convicted Mr. Chiasson and Mr. Newman. Earlier this month, Judge Sullivan sentenced Mr. Newman to four and a half years in prison.

The sentencing of Mr. Chiasson caps an ignominious end to a high-flying Wall Street career.

The youngest of four children, Mr. Chiasson grew up in Portland, Me., and pursued a career in finance after graduating from Babson College. In 1999, as a young technology industry analyst, Mr. Chiasson joined SAC Capital Advisors, the giant hedge fund owned by the billionaire stock picker Steven A. Cohen. Working under David Ganek, one of Mr. Cohen’s star traders, Mr. Chiasson made a name for himself by making a large, negative bet against Internet stocks just before the dot-com bubble burst.

He also met his wife, Sandra Janson, at SAC. Ms. Janson worked as an assistant controller at the fund, and according to a court filing, their relationship started when Mr. Chiasson wandered into her office and playfully complained about the candy selection in a dish she kept on her desk.

“The next time Anthony visited the accounting department, the dish contained tiny, single-serving boxes of Junior Mints — Anthony’s favorite candy,” Mr. Chiasson’s lawyers wrote. The couple lives in Manhattan with their young son and baby daughter, but they are moving to the suburbs.

“I’m so sorry for your family and I’m so sorry for your wife,” Judge Sullivan said.

A decade ago, Mr. Chiasson left SAC along with Mr. Ganek to start Level Global Investors. The firm flourished, attracting marquee investors like Aetna and Cornell University. At it peak, the firm managed $4.2 billion and had 75 employees. In April 2010, Goldman Sachs bought a minority stake in the fund.

Just a few months later, Level Global’s ascent came to a crashing halt when F.B.I. agents raided the firm’s offices. The government investigation into Level Global came as part of an inquiry into hedge funds’ use of expert network firms, which are research shops that connect money managers to public company employees.

Mr. Chiasson became ensnared in the case after a junior analyst at Level Global, Spyridon Adondakis, turned state’s evidence. He told investigators – and later testified at trial – that he shared with Mr. Chiasson secret information gleaned from a source inside Dell.

Lawyers for Mr. Chiasson had some success in arguing that their client should receive a sentence shorter than the one recommended under federal guidelines, which was for as much as 10 years.

The guideline sentence was so stiff because the government said that Mr. Chiasson caused Level Global to earn about $40 million in profits as a result of the improper trades, and the profit amount primarily drives the guideline sentence. Mr. Chiasson’s lawyers said that adhering to the guidelines “would be as draconian as it would be unwarranted.”

Judge Sullivan, though, disparaged one aspect of the defense’s argument that Mr. Chiasson should receive a lenient sentence because he lived an otherwise honorable life beside the crimes for which he was convicted – an argument commonly made by insider trading defendants.

Mr. Morvillo described Mr. Chiasson as “an extraordinary man,” almost entirely focusing on his becoming a trustee at both his secondary school, Cheverus High School in Portland, Me., and alma mater, Babson College in Wellesley, Mass., at such a young age. After Mr. Morvillo suggested that those appointments had nothing to do with money and were a function of his character, Judge Sullivan cut him off.

“You think money had nothing to do with it?” the judge asked, referring to the trusteeships. “Do I have to suspend my disbelief this much?”

Mr. Chiasson’s case is one of several insider trading prosecutions that have touched SAC, which has become a central target of the government’s investigation. Prosecutors charged two former SAC employees with participating in the insider trading ring involving Mr. Chiasson. Jon Horvath, a former SAC technology stock analyst, has admitted being a part of the scheme. In March, Mr. Horvath’s boss, Michael S. Steinberg, was indicted. He is fighting the charges and is scheduled to go on trial in November before Judge Sullivan.

Mr. Ganek was not charged as part of the case, either criminally or civilly. But he figured prominently at the trial because he executed some of the questionable Dell trades. Although Mr. Adondakis testified that he did not tell Mr. Ganek about the source inside Dell, Judge Sullivan deemed Mr. Ganek an unindicted co-conspirator in the case.

Federal prosecutors took an aggressive stance toward Mr. Ganek in their court papers connected to Mr. Chiasson’s sentencing.

“The evidence demonstrated that Mr. Ganek was aware that Adondakis’s information on Dell came from a source inside the company, and Ganek was a co-conspirator with Chiasson,” prosecutors wrote. “That evidence included a number of instant messages and e-mails between Ganek and others that indicated that Ganek was kept apprised of Adondakis’s updates and the source of the information.”

John K. Carroll, a lawyer for Mr. Ganek at Skadden, Arps, Slate, Meagher & Flom, blasted the prosecutors’ comments about his client.

“The government’s conclusory statements about my client are unsubstantiated and unfair,” Mr. Carroll said. “It’s particularly unfair that prosecutors continue to defame my client with patched-together innuendo when they well know that they have comprehensively investigated his conduct and concluded that no charges should be brought.”

This post has been revised to reflect the following correction:

Correction: May 14, 2013

An earlier version of this article misstated the year that Anthony Chiasson joined SAC Capital Advisors. It was 1999, not 1995.

DealBook: Ex-Partner at KPMG Under Scrutiny in Insider Trading

Scout Tufankjian for The New York TimesA Herbalife distributor in New York.

2:07 p.m. | Updated

Federal authorities in Los Angeles are investigating a former senior executive at KPMG on suspicion of leaking secret information to a stock trader, according to people with direct knowledge of the inquiry.

Scott I. London, the partner in charge of the audit practice for KPMG in Southern California, was fired by his employer because of the suspected passing of confidential data to an unnamed individual, a person briefed on the matter said.

The case involves alleged tips about confidential data related to Herbalife, the seller of nutritional supplements, and Skechers USA, the footwear maker, according to these people. On Tuesday morning, both Herbalife and Skechers announced that KPMG had resigned as their auditor.

Both the United States attorney’s office in Los Angeles and the Securities and Exchange Commission’s outpost there are investigating the case, people briefed on the matter said.

Skechers added that, according to KPMG, the former partner in question – Mr. London — was cooperating with authorities.

Skechers paid $50 million last year to resolve claims of false advertising.

Mr. London, 50, could not immediately be reached for comment. He worked at KPMG for 29 years, according to a profile on LinkedIn. A resident of Agoura Hills, California, Mr. London serves as chairman of the L.A. Sports Council and sits on the board of directors of the Los Angeles Area Chamber of Commerce.

The news of possible insider trading emerged in an unusual fashion late on Monday, when KPMG announced on its Web site that it had fired a senior partner in its Los Angeles office because of the suspected passing of confidential information to an unnamed individual “who then used that information in stock trades involving several West Coast companies.”

The firm said it had to resign as auditor from several companies “after concluding today that the firm’s independence has been impacted” because of the partner’s behavior. It added that the partner acted “with deliberate disregard for KPMG’s longstanding culture of professionalism and integrity.”

A government action against the former KPMG partner would add to the recent push by prosecutors and securities regulators to root out insider trading, a campaign that has yielded about 180 civil actions and more than 75 criminal prosecutions.

The news added to a swirl of publicity surrounding Herbalife, a supplement seller that has been in the middle of a well-publicized battle involving several hedge fund managers. William A. Ackman of Pershing Square Capital Management has said that he believes Herbalife is a “pyramid scheme,” and he has a $1 billion bet in the place that the price of the stock will drop. On the other side of the trade is the activist investor Carl C. Icahn, who owns a large position in Herbalife shares.

Herbalife, based in Los Angeles, said that KPMG had informed the company on Monday afternoon it was resigning as auditor because its independence had been impaired.

In its announcement, Herbalife said it believed its financial accounts for its last three fiscal years remained accurate. But KPMG, citing concerns about its independence, withdrew its audits for those years. KPMG also said that its resignation was in no way related to Herbalife’s “financial statements, its accounting practices, the integrity of Herbalife’s management or for any other reason.”

It is unclear when Herbalife will hire a new auditor, though any such firm would probably take a fresh look at the company’s financial records.

David Weinberg, the chief financial officer of Skechers, said in a statement that he believed none of the company’s audited filings misstated its results or financial condition. Still, KPMG was withdrawing its audit reports for the company’s last two fiscal years.

The emergence of a possible insider trading case involving KPMG emerged in an unusual fashion late on Monday, when the firm announced on its Web site that it had fired a senior partner in its Los Angeles office. 

The news is an embarrassment to KPMG, which came under scrutiny last decade for its role in marketing tax shelters. Two former KPMG partners are serving prison terms for selling fraudulent tax shelter schemes to clients.

Tim Connolly, a KPMG spokesman, did not immediately respond to a request for comment.

In the statement issued Monday evening, KPMG said the firm’s “22,000 partners and employees unequivocally condemn this individual’s rogue actions.” The firm did not name the companies whose confidential information was disclosed as part of the scheme.

Skechers, too, has been in the cross hairs of regulators. Last year, it agreed to pay $50 million to resolve federal and state accusations that it misled the public with false advertising related to its “toning shoes.” The company claimed in its ads, including one featuring Kim Kardashian, that the sneakers would help consumers tone muscles and lose weight.

DealBook: Former Partner at KPMG Charged With Insider Trading

Federal Bureau of InvestigationScott London, left, of KPMG, accepting payment from Bryan Shaw.

11:05 p.m. | Updated

The payments came in various forms. There were envelopes of $100 bills wrapped in $10,000 bundles. There were expensive tickets to a Bruce Springsteen concert. There was a 2011 Rolex Cosmograph Daytona valued at $12,000.

Bryan Shaw, a jeweler in the Los Angeles area, bestowed these gifts upon Scott I. London, a senior executive at the accounting giant KPMG. It was the least that he could do for Mr. London, who routinely gave him secret information about KPMG’s clients. Mr. Shaw traded on the tips, earning more than $1 million in illegal profits.

Prosecutors filed criminal charges against Mr. London on Thursday, laying bare a brazen two-year insider trading scheme. Mr. Shaw was not criminally charged, but named in a related civil action brought by the Securities and Exchange Commission. In recent days, both men have publicly confessed to their misconduct.

“As a leader at a major accounting firm, London’s conduct was an egregious violation of his ethical and professional duties,” said Michele Wein Layne, director of the S.E.C.’s Los Angeles office.

Early this year, Mr. Shaw turned against Mr. London after investigators confronted him with evidence of insider trading. He became a government informant, recording telephone conversations and in-person meetings to help the authorities build a case against Mr. London.

“He viewed it as an unfortunate but necessary part of the process to making things right,” said Nathan J. Hochman, a lawyer for Mr. Shaw. Last month, Mr. Shaw participated in a sting operation to ensnare Mr. London. The F.B.I. provided Mr. Shaw with $5,000 in cash, which was placed in a manila envelope and then wrapped in a black paper bag. Mr. Shaw met Mr. London in the parking lot outside of a Starbucks and handed him the bag.

Federal agents took photographs of the exchange, and included one of them in the government’s complaint. Two weeks later, two F.B.I. officials showed up at the home of Mr. London, who admitted his crimes.

J. Emilio Flores for The New York TimesScott London, right, a former senior partner at KPMG, with his lawyer, Harland Braun.

The sting was an ignominious end to what had been a flourishing friendship in the San Fernando Valley. Mr. London and Mr. Shaw met in 2005, shortly after Mr. Shaw joined the North Ranch Country Club in Westlake Village, Calif. They frequently golfed together and socialized with each other’s families.

Mr. London, a former college baseball player at California State University, Northridge, spent his entire career at KPMG. He worked at the firm for about 29 years, rising to a senior partner in the firm’s Los Angeles office, where he supervised more than 500 accountants and oversaw the audits for some of its most important clients. He established himself as a player in Los Angeles business circles, joining the board of the city’s Chamber of Commerce and serving as chairman of the Los Angeles Sports Council.

Meanwhile, Mr. Shaw’s family-owned jewelry business was sputtering, having been particularly hard hit by the financial crisis. Mr. London said that in 2010, he began to give Mr. Shaw confidential information about his clients because of Mr. Shaw’s deteriorating economic situation.

Over two years, Mr. London secretly passed confidential information to Mr. Shaw about several KPMG clients, including Herbalife, the nutritional supplement company; the footwear manufacturers Skechers and Deckers Outdoor Corporation; and Pacific Capital Bancorp, the government said.

Late Thursday, KMPG’s chief executive, John B. Veihmeyer, said that the firm would soon be bringing legal action against Mr. London.

The tips started with leaks about companies’ quarterly earnings announcements, but escalated into more lucrative secrets about pending mergers and acquisitions.

The case surfaced earlier this week, when KPMG issued a statement saying that it had fired the partner in charge of its audit practice in Southern California because of an insider trading violation and that it was resigning as auditor for two companies — Herbalife and Skechers — because its independence had been compromised.

Even before the government filed its charges, Mr. London and Mr. Shaw had publicly confessed to their misconduct.

“I regret my actions in leaking nonpublic data to a third party,” Mr. London, 50, of Agoura Hills, Calif., said in a statement on Tuesday. “What I have done was wrong and against everything that I had believed in.”

Mr. Shaw, 52, of Lake Sherwood, Calif., said he accepted “full and complete responsibility for what I have done and know that I will spend the rest of my life trying to make up for my tragic lapses of judgment.”

Herbalife proved to be an especially fertile source of illegal tips. The company’s shares have been volatile because of a public feud between prominent investors — William A. Ackman, who has a big bet in place against the company, and Carl C. Icahn, who owns a big stake — over the value of its stock.

In a telephone conversation that Mr. Shaw secretly recorded in February, Mr. London discussed rumors that Herbalife might be a takeover target, and outlined a classic strategy of insider trading schemes.

“What we ought to do is, when I know that it’s going to start happening, what you do is you start just buying in small blocks, right, so it doesn’t draw attention and then, you know, then it doesn’t look unusual at all,” Mr. London said.

Though Mr. Shaw was struggling financially, he rewarded Mr. London handsomely for the tips. He paid Mr. London more than $50,000 in cash, according to prosecutors, which he usually delivered in bags outside his store, Shaw Diamond Company, on Ventura Boulevard in Encino.

Mr. Shaw also routinely covered the cost of dinners and concerts they attended with their families, including a Springsteen show. All told, Mr. London received more than $100,000 worth of kickbacks.

Federal authorities opened an investigation last fall, after the brokerage firm Fidelity raised red flags about activity in Mr. Shaw’s account.

Last summer, Fidelity froze the account, and Mr. Shaw called Mr. London in a panic, expressing worry that they had been found out.

“Mr. Shaw said that Mr. London reassured him that there was no reason for concern, and explained that insider trading was like counting cards at a casino in Las Vegas,” the government’s complaint said. “If you were caught, they simply ask you to leave because they cannot prove it.”

Lynnley Browning and Michael J. de la Merced contributed reporting.

DealBook: The Impact of the Latest Insider Trading Convictions

Seth Wenig/Associated PressMathew Martoma, center, the latest alumnus of SAC Capital Advisors to be accused of breaking the law.

The convictions of Anthony Chiasson and Todd Newman in a lucrative insider trading case may well send a message to Mathew Martoma, the former SAC Capital portfolio manager, about the risks he runs if he fights similar charges filed against him.

The potential sentences of more than 10 years in prison that the two defendants face puts even more pressure on Mr. Martoma to cooperate in the government’s apparent quest to get his former boss, Steven A. Cohen, the founder of SAC. (Mr. Cohen has not been accused of wrongdoing, and his spokesman has said that Mr. Cohen has acted appropriately.)

The case against Mr. Chiasson and Mr. Newman was a classic insider trading prosecution built on the testimony of analysts at their hedge funds who had confessed to receiving confidential information about Dell and Nvidia and then passing it on. The government did not have recordings of the defendants discussing the companies, the type of evidence that proved so devastating in other recent cases.

The cooperators, Spyridon Adondakis and Jesse Tortora, testified that they gave the information to their bosses, Mr. Chiasson and Mr. Newman, who understood that it was confidential and reaped a total of more than $70 million in profits.

The defense strategy was simple: Accuse the cooperators of lying about their bosses by making deals to save their own skins. Mr. Adondakis was described by the defense as an “easy, practiced liar,” while Mr. Tortora was assailed as someone who “cannot and should not be trusted.”

The defendants called just two witnesses and rested their defense case after just a few minutes. Because the case rode on the credibility of the cooperators, Mr. Chiasson and Mr. Newman argued they were not aware that their underlings were passing on inside information.

Louis Lanzano/Associated PressTodd Newman was found guilty of fraud and conspiracy in an insider trading case.Louis Lanzano/Associated PressAnthony Chiasson was found guilty of fraud and conspiracy in an insider trading case.

In addition to the securities fraud charges, the jury convicted the two defendants of conspiracy based on the wider circle of tippers and recipients who passed around confidential information. Although the two men did not deal with each other directly, the government claimed that they were part of a larger agreement to trade on inside information.

The conspiracy conviction may prove especially devastating to Mr. Newman. By far, the largest trade was made by Mr. Chiasson’s firm in Dell right before a negative earnings announcement in August 2008 that netted $53 million in profits. Because the jury found they were members of the same conspiracy, Mr. Chiasson’s gains are attributable to Mr. Newman, even if he was unaware of the trading.

The federal sentencing guidelines base much of the recommended sentence on the amount of the defendants’ gains or losses avoided from the insider trading. Under the guidelines, Mr. Chiasson and Mr. Newman face a term of over 10 years in federal prison based on the benefits reaped from the transactions.

Another problem the defendants face is that Judge Richard J. Sullivan of the Federal District Court in Manhattan will decide their sentences. He has generally followed the recommended sentence in other cases, meting out substantial prison terms for insider trading.

For example, he sentenced Zvi Goffer to 10 years for his role in organizing a group of insider traders with ties to Galleon Group for trading that resulted in profits of as much as $20 million. At the sentencing hearing, Judge Sullivan noted that Mr. Goffer fought the charges by going to trial and only accepted responsibility after his conviction.

The judge told Mr. Goffer, “You decided to gamble with your future, and you lost.” That does not bode well for Mr. Chiasson and Mr. Newman, who have maintained their innocence and are unlikely to express contrition.

In 2010, Judge Sullivan imposed a six-year prison term on Joseph Contorinis, a former Jefferies Group fund manager, after his conviction for receiving tips in a case that also relied on the testimony of a cooperating witness. The profits were $7 million, about 10 percent of what Mr. Chiasson and Mr. Newman were accused of making on their trades.

It would not be a surprise for Judge Sullivan to hand down significant sentences near the 11 years Raj Rajaratnam received. His trading produced profits of approximately $63 million, similar to those realized by Mr. Chiasson and Mr. Newman, so the government is likely to argue that case may serve as a guidepost for determining their punishment.

The defendants can be expected to appeal their convictions. Two likely challenges will be to the sufficiency of the evidence of the conspiracy and to limitations the court placed on expert testimony about the trading at their hedge funds to show that the transactions were unlikely to have been based on inside information.

One ray of hope for them is the recent decision of the United States Court of Appeals for the Second Circuit allowing Rajat Gupta, convicted of tipping Mr. Rajaratnam, to remain free on bail while his case is on appeal.

Although the issues are different, Mr. Chiasson and Mr. Newman can point to that decision as a basis to allow them to avoid having to report to prison until their appeals are decided, which probably won’t happen until 2014.

Mr. Martoma was charged with trading on inside information about a clinical drug trial that the government claims produced profits and losses avoided for SAC of more than $270 million.

The charges depend almost entirely on the testimony of Dr. Sidney Gilman, a prominent neurologist who reached a nonprosecution agreement with prosecutors in exchange for his cooperation.

As in the case of Mr. Chiasson and Mr. Newman, the defense in Mr. Martoma’s case will assail Dr. Gilman’s credibility based on the favorable deal he received. But undermining his testimony may be more difficult because he did not trade on the information and is not a Wall Street insider who regularly dealt in financial information.

Prosecutors may be able to present Dr. Gilman as someone who got “played” by a sophisticated hedge fund trader. If a jury was willing to convict based on the testimony of witnesses like Mr. Adondakis and Mr. Tortora, there is a reasonably good chance Dr. Gilman’s testimony will be sufficiently believable to support a conviction of Mr. Martoma.

A lawyer for Mr. Martoma has said that he expects his client to be exonerated.

The recommended sentence he would face if convicted starts at about 15 years, and even a sympathetic judge is likely to be swayed by the outsize benefits produced by the trading in deciding the punishment.

Whether Mr. Martoma will try to make a deal remains to be seen, and it is unclear what information he might provide about Mr. Cohen that would entice prosecutors into a favorable plea bargain. The convictions of Mr. Chiasson and Mr. Newman are unlikely to bolster Mr. Martoma’s confidence that he can beat the charges he is facing.

DealBook: Wells Fargo Banker and 9 Others Charged With Insider Trading

The Securities and Exchange Commission accused a Wells Fargo investment banker of insider trading on Wednesday, saying that he and others took advantage of nonpublic information he obtained about merger deals involving clients.

The agency said that the banker, John W. Femenia, 30, would pass along information to a friend, Shawn C. Hegedus, who worked as a stockbroker. The two tipped other friends, who in turn passed along the information to other friends or family members, the civil complaint said. All told, the group garnered more than $11 million in illicit profits trading, the agency said.

“Here you have an investment banker who clearly knew better that inside information can’t form the basis of trading decisions,” William P. Hicks, associate director for enforcement in the S.E.C.’s Atlanta office, said in a statement. “Instead he basically started a phone tree of nonpublic information to enrich friends and others.”

Mr. Femenia is accused of tipping others about four merger deals included the acquisition of the Smurfit-Stone Container Corporation by the Rock-Tenn Company and the sale of the Shaw Group to Chicago Bridge & Iron.

The agency said that Mr. Femenia, who works for Wells Fargo Securities in New York, obtained most of the information about the deals when he worked for the firm in Charlotte, N.C.

“Wells Fargo has detailed policies and training programs on the handling of confidential information, and we have a zero-tolerance policy for the misuse of such information,” a Wells Fargo spokeswoman said in a statement. ‘We learned about the underlying allegations yesterday and are assisting and fully cooperating with the S.E.C. and other agencies in these proceedings.”

According to the S.E.C.’s civil complaint, the recipients of the tips traded in the stock and options of the companies being acquired in the deals, and at least one trader provided a portion of his profits to Mr. Femenia in exchange for the information.

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.

DealBook: Ex-SAC Analyst Pleads Guilty in Insider Trading Conspiracy

Shannon Stapleton/ReutersJon Horvath pleaded guilty to insider trading charges Friday.

8:31 p.m. | Updated

The billionaire investor Steven A. Cohen and his hedge fund, SAC Capital Advisors, are again in the spotlight over insider trading crimes committed by former employees.

Jon Horvath, a onetime technology industry analyst at SAC, pleaded guilty on Friday to insider trading a month before his scheduled trial. He is the fourth former SAC employee to admit to illegal trading while employed at the fund, which manages $14 billion. SAC has been a focus of federal authorities since the government began its crackdown on insider trading at hedge funds five years ago.

The admission by Mr. Horvath, who entered his guilty plea in Federal District Court in Manhattan, increases the pressure on the co-defendants in his case: Anthony Chiasson, who was a co-founder of Level Global Investors, and Todd Newman, a portfolio manager at Diamondback Capital Management.

Federal prosecutors contend they were part of a seven-person conspiracy — a “circle of friends” — that earned about $62 million in illegal gains trading on secret tips from executives at publicly traded technology companies. Mr. Horvath, 42, is the fifth person to plead guilty and cooperate with the government. Several of the cooperators are expected to testify against Mr. Chiasson and Mr. Newman at their trial, which is set for Oct. 29.

Mr. Horvath’s guilty plea also puts the focus on another SAC trader. Michael Steinberg, who supervised Mr. Horvath at SAC, emerged as an unindicted co-conspirator in the case last week.

During his court appearance on Friday, Mr. Horvath said that he obtained confidential information about the technology companies Dell and Nvidia and then “provided the information to the portfolio manager I worked for and we executed the trades based on that information.” That portfolio manager is Mr. Steinberg, according to two people with direct knowledge of the matter who requested anonymity.

Mr. Steinberg, 40, is one of Mr. Cohen’s longtime lieutenants, having worked at SAC since 1997. Barry H. Berke, a lawyer representing Mr. Steinberg, declined to comment.

“Until today, Mr. Horvath maintained he had not violated the law and we gave him the benefit of the presumption of innocence,” said Jonathan Gasthalter, an SAC spokesman. “We are disappointed and angered to learn Mr. Horvath admittedly violated the law and SAC’s policies forbidding insider trading. We expect our employees to have integrity, play by the rules and follow the letter and spirit of the law.”

Steven R. Peikin, a lawyer for Mr. Horvath, declined to comment. John A. Nathanson, a lawyer for Mr. Newman, and Gregory Morvillo, a lawyer for Mr. Chiasson, also declined to comment.

Though he has not been charged in the case, Mr. Steinberg is now the fifth employee or former employee of SAC tied to insider trading while at the fund. Last year, two former SAC portfolio managers — Donald Longueuil and Noah Freeman — admitted to trading on illegal tips about publicly traded technology companies. Mr. Longueuil is serving a two-and-a-half-year jail term at a federal prison in Otisville, N.Y.; Mr. Freeman, who is cooperating with prosecutors, has yet to be sentenced.

Jonathan Hollander, a former SAC analyst, paid more than $220,000 to settle civil charges brought by the Securities and Exchange Commission accusing him of trading in his personal account on confidential information about the takeover of the Albertsons grocery store chain.

A number of Mr. Horvath’s co-conspirators also have deep SAC connections. Mr. Chiasson left SAC to co-found Level Global, which closed last year. Mr. Newman’s fund, Diamondback, was started by SAC alumni, including Mr. Cohen’s brother-in-law, Richard Schimel. Diamondback remains in business, and Mr. Schimel has not been implicated in the case.

Mr. Cohen and SAC have not been accused of wrongdoing. The fund, based in Stamford, Conn. with about 1,000 employees, has a 20-year track record that is one of the best investment records in the hedge fund industry. The fund is up about 8 percent year-to-date.

SAC has an unconventional structure. Unlike other hedge fund managers who make all the investment decisions, Mr. Cohen manages less than 10 percent of the fund’s money, distributing the rest to about 140 small teams. It is a high-pressure culture where Mr. Cohen will reward teams that perform well with increased allocations, while underperformers can get cut back or lose their jobs. The more money a team manages, the greater its potential earnings.

His success as a stock picker has made Mr. Cohen, 56, one of the richest people in the country, with a net worth of $8.8 billion, according to Forbes magazine. He has also minted a stable of multimillionaires; in profitable years, top traders at SAC have earned tens of millions of dollars.

Mr. Horvath, a Swedish citizen who now resides in San Francisco, faces a maximum prison sentence of 45 years, though he is expected to receive far less. He also could face deportation after serving time.

The charges against Mr. Horvath are part of a vast crackdown on insider trading by federal authorities in Manhattan that has yielded prosecutions of 72 people, 69 of which have resulted in convictions.

This post has been revised to reflect the following correction:

Correction: September 28, 2012

An earlier version of this article misspelled the surname of Steven A. Cohen’s brother-in-law. It is Richard Schimel, not Shimel.