DealBook: Former SAC Trader Found Guilty of Insider Trading

DealBook: JPMorgan Set to Pay Fines for Whale Trading Losses

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Sunnier Data From China Lifts Wall Street Trading

The stock market moved sharply higher on Monday, with the Nasdaq composite index ending at its highest since September 2000, after upbeat data from China increased optimism about the health of the global economy.

Investor sentiment was also lifted by merger activity and easing concern about a potential American military strike on Syria.

The Standard & Poor’s 500-stock index closed higher for a fifth straight session, posting its best daily performance since Aug. 1, while all 10 S.& P. sectors ended higher. More than 70 percent of companies that trade on the New York Stock Exchange and Nasdaq exchange posted gains.

Basic materials shares led the day’s gains, rising 1.5 percent, after China’s August exports handily beat market expectations while consumer inflation there held steady. United States Steel shares jumped 66 cents, or 3.5 percent, to $19.53, while Alcoa rose 16 cents, or 2 percent, to $8.08.

“This is more proof that the Chinese government’s attempts to stabilize the country’s economy are helping, and that really got us up and running,” said Donald Selkin, chief market strategist at National Securities.

Equities added to their gains in afternoon trading as it appeared less likely that a resolution authorizing military strikes against Syria would be approved easily by Congress.

Geopolitical uncertainty related to Syria has been a major market driver in recent weeks, with investors especially concerned about the potential impact on the oil market.

Senator Harry Reid, Democrat of Nevada and the majority leader, scheduled a test vote for later this week, but it was unclear whether the measure would attract enough backing to clear anticipated procedural roadblocks.

“Every poll shows it would be very difficult for Obama to get authorization, and that might be enough to delay any action or at least make the action more cautious,” Mr. Selkin said. “Both of those would give the market a leg up.”

Separately, a Russian proposal to place Syria’s chemical weapons under international control was welcomed by the government in Damascus, which praised the Kremlin for seeking to “prevent American aggression.”

The Dow Jones industrial average rose 140.62 points, or 0.94 percent, to 15,063.12. The S.& P. 500 gained 16.54 points, or 1 percent, to 1,671.71. The Nasdaq picked up 46.17 points, or 1.26 percent, to 3,706.18.

Deal news gave a further lift to market confidence.

Koch Industries agreed to buy the electronic connectors maker Molex for about $7.2 billion.

Ares Management and the Canada Pension Plan Investment Board reached a deal to buy the privately owned luxury retailer Neiman Marcus for $6 billion.

Molex shares surged $9.29, or 31.7 percent, to $38.63 as the S.& P.’s top gainer.

Shares of home builders rallied as investors bet that the rise in mortgage rates was nearly over. Pulte Group stock added $1.16, or 7.5 percent, to $16.63.

In the bond market, interest rates eased. The price of the Treasury’s 10-year note rose 6/32, to 96 15/32, while its yield dipped to 2.91 percent, from 2.93 percent late Friday.

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

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Two Charged With Stealing Source Code From NY Trading Firm

Jason Vuu, 26, a former trader at Flow Traders LLC in Manhattan, was charged with emailing himself trading strategies, valuation algorithms and proprietary code from the firm and sharing the code with another man, Simon Lu, 25, according to criminal complaints filed by the office of Manhattan District Attorney Cyrus Vance.

Another former trader at Flow Traders, Glen Cressman, 26, was charged with copying files containing trading strategies and valuation algorithms without permission, the complaints said.

Paul Shechtman, a lawyer for Lu, and Jeremy Saland, a lawyer for Vuu, did not immediately respond to requests for comment on Monday.

Charles Ross, who represents Cressman, said his client was innocent.

"He was a fine employee, and when everything about the case is aired, it will be clear he did nothing wrong," Ross said.

A lawyer for Flow Traders, which according to its website is an international proprietary trading house headquartered in Amsterdam, could not be reached immediately for comment.

The three men were arraigned on the charges two weeks ago and are due back in court on November 18, when they could face grand jury indictments. Lu currently resides in Pittsburgh, Vuu in California, and Cressman in Fort Lauderdale, Florida, according to prosecutors.

The arrests came a year after Vance's office charged former Goldman Sachs Group Inc. programmer Sergey Aleynikov with stealing secret trading code. Aleynikov had been previously been convicted in federal court for the same actions, but his conviction was thrown out in February 2012 by an appeals court, which said federal espionage laws did not cover his alleged theft.

Vance then charged Aleynikov under New York state law. Earlier this year, a judge denied Aleynikov's attempt to have the state charges dismissed on double jeopardy grounds. Aleynikov, who pleaded not guilty, is free on bail.

Both Vance and the U.S. attorney for Manhattan, Preet Bharara, whose office brought the initial case against Aleynikov, have made combating computer crime and corporate espionage a top priority.

Lu, Vuu and Cressman all face multiple counts of unlawful duplication of computer-related material and unauthorized use of secret scientific material, the same charges Aleynikov is facing. The charges carry sentences of up to four years in prison.

Vuu sent copies of files from his work email account to his personal email address 10 times from August 2011 to August 2012, the complaint said. He also shared source code with Lu via the file-hosting service Dropbox after Lu suggested the code could help them start their own firm, according to the complaint.

Cressman's personal email account received copied files containing trading strategies and valuation algorithms twice in December 2012, according to the complaint.

The charges were first reported by The Wall Street Journal.

(Reporting by Joseph Ax; editing by Noeleen Walder, Dan Grebler and Leslie Adler)

DealBook: Nasdaq Chief Defends Handling of Trading Halt

DealBook: SAC Capital Closes a Trading Unit

DealBook: In Complex Trading Case, Jurors Focused on Greed

JPMorgan to Exit Physical Commodities Trading

Wall Street's biggest bank said an "internal review" had concluded it should pursue "strategic alternatives" for its physical commodities operations, which includes assets like its Henry Bath metals warehousing subsidiary and a team of physical power and oil traders in Houston and New York.

The firm will explore "a sale, spinoff or strategic partnership" for its physical arm, the statement said, adding the bank remained "fully committed" to its traditional financial commodity business, including trading derivatives and its activities in precious metals.

The bank's announcement follows a week of unprecedented scrutiny of Wall Street's commodity operations, after the U.S. Federal Reserve said last Friday it was reviewing a landmark 2003 decision that allowed commercial banks to trade in physical markets to "complement" their financial activity.

JPMorgan has also faced additional pressure from a power market manipulation scandal in California and the Midwest, with reports suggesting the bank will soon pay a near record $410 million settlement with the U.S. Federal Energy Regulatory Commission (FERC).

The Department of Justice and the U.S. Commodity Futures Trading Commission have also both launched probes into the metal warehousing businesses owned by Wall Street banks and other large physical traders, which have been accused of driving up metals prices.

The abrupt move marks a sharp reversal for the bank that had pushed aggressively into the sector since 2008, when it first acquired a host of physical trading assets and expertise through its acquisition of Bear Stearns during the financial crisis.

That was followed by the acquisition of RBS Sempra Commodities in 2010, allowing the bank to quickly challenge Goldman Sachs and Morgan Stanley for the title of largest commodity business on Wall Street.

A spokesman for JPMorgan did not immediately return a call seeking comment.

The decision will also bring questions about the next move for Blythe Masters, the architect of JPMorgan's growth in commodities and one of the most famous women on Wall Street.

JPMorgan shares were down 1 percent at $55.97 in late afternoon trading on Friday.

(Additional reporting by Jonathan Leff in New York, Avik Das and Aman Shah in Bangalore; Editing by Sriraj Kalluvila and Phil Berlowitz)

DealBook: Finra Scrutinizes High-Speed Trading Firms

Regulators are taking a closer look at whether high-frequency trading firms might represent a threat to the stability of financial markets.

The Financial Industry Regulatory Authority, an industry-financed regulator, sent letters to 10 high-speed trading firms this week, asking them for more information about their trading programs and the steps they have in place to avert “market disruptions.”

The letter comes as regulators around the world are grappling with the role that high-speed trading firms have come to play over the last decade as they have grown to account for a majority of all trading in American stocks. These firms, which use high-speed computers and infrastructure to take advantage of small discrepancies in trading prices, have also taken an increasing role in trading in other markets.

The letter sent out this week is focused primarily on the steps the firms take to test their programs, or algorithms, before they begin trading with them, and the preparations they take to deal with unexpected trading problems. Regulators have been focused on these issues since one trading firm, Knight Capital, lost nearly $500 million, and nearly went bankrupt, after its trading programs went haywire last August.

The letter also asks about efforts to monitor market “manipulation.” Earlier this year, Finra said in an annual report that it was concerned about high-speed trading strategies that are “used for manipulative purposes.”

DealBook: U.S. Regulators Approve Stricter Trading Rules Abroad

Federal regulators reached a last-minute compromise on Friday to expand their oversight far beyond American shores, overcoming internal squabbles and Wall Street lobbying to rein in some of the overseas trading that imploded during the financial crisis.

The Commodity Futures Trading Commission voted 3 to 1 to adopt its so-called cross-border guidance, a deal struck just hours before a self-imposed deadline was set to expire. Gary Gensler, the agency’s chairman and a fierce critic of Wall Street risk-taking, spearheaded the decision to approve the guidance, which dictates how to apply United States regulations to American banks doing business in London and beyond.

Yet the agency’s battle, both internally and with Wall Street, will drag on for months.

While firms like Goldman Sachs International and the London branch of Citigroup will face a wave of new scrutiny, the agency made crucial concessions to big banks, including a delay in the new oversight.

The oversight, Mr. Gensler said, will be phased in over several months and his agency will defer to European regulators if they adopt similar rules.

The agency also afforded Wall Street additional time to comment on the plan to phase in the regulation, inviting an onslaught of lobbying from banks that could seek additional delays. One financial group, the Institute of International Bankers, called the agency’s announcements “a big step forward” to a “workable approach.”

Dennis M. Kelleher, president and chief executive of Better Markets, a nonprofit advocacy group, called it, “the lobbyist full employment act.”

While he praised Mr. Gensler for securing a deal, he added that “this mixed bag of some very good, some not-so-good and some to-be-determined provisions will mean that Wall Street’s war on regulation of high-risk cross-border derivatives dealing will not end today.”

This delay could be costly. Mr. Gensler, a former Goldman Sachs executive who has been an aggressive regulator, is expected to leave the agency before the end of the year. His departure could leave certain aspects of the cross-border plan in the hands of someone with a softer stance toward the banks.

Even with the compromise, however, the guidance is a victory for Mr. Gensler, who had vowed to meet the Friday deadline without fully caving in to Wall Street’s demands. The 2008 crisis, he noted, demonstrated the huge risks of overseas trading to financial stability.

“At the center of this crisis were the far-flung operations of U.S. financial institutions,” he said in an interview. “What we did is kept those lessons in mind and kept our eye on protecting the American public.”

Trades by a London unit of the insurance giant American International Group, he noted, nearly toppled the company. And JPMorgan Chase’s $6 billion trading loss in London last year reignited concerns that risk-taking could come crashing back to American shores.

The crisis led Congress to enact the Dodd-Frank Act in 2010, a law that mandated an overhaul of the $700 trillion marketplace for derivatives, financial contracts that derive their value from an underlying asset like a bond or an interest rate. Under that law, the trading commission is supposed to extend new derivatives changes overseas — including tougher capital standards, a requirement that trades go through regulated clearinghouses and other requirements — if the foreign trading has “a direct and significant connection with activities” of the United States.

Over the last year, the agency has battled infighting over how aggressively to interpret the law, and when to do it.

The guidance, the most contentious issue facing the agency, had strong support from Mr. Gensler and Bart Chilton, a fellow Democratic commissioner at the agency who also supported completing the guidance by the Friday deadline. Mr. Chilton noted that, with the deadline coming three years after Dodd-Frank was passed, “It didn’t just sneak up on us.”

But Mark P. Wetjen, a Democratic commissioner with an independent streak, had expressed concern that the Friday deadline was “arbitrary.”

With the agency’s Republican commissioner, Scott D. O’Malia, opposing the guidance, Mr. Wetjen held the swing vote.

A compromise appeared unlikely until Wednesday, people close to the agency said, when Mr. Wetjen and Mr. Gensler reached a tentative deal.

A central component of Mr. Gensler’s final plan will apply the Dodd-Frank rules to overseas firms that are guaranteed by an American bank, including Goldman Sachs International. Foreign branches like the British branch of JPMorgan Chase, where the recent losses occurred, will also face the agency’s oversight.

Mr. Gensler also included offshore hedge funds, many based in the Cayman Islands, so long as their “nerve center” is based in the United States.

But Mr. Gensler’s victory came with some sacrifice. He agreed, for example, to defer to foreign regulators in Europe and elsewhere that have adopted “comparable and comprehensive” regulations to Dodd-Frank. It is up to Mr. Gensler’s agency to decide whether the other regulators’ rules meet the standard.

While European regulators have adopted many similar rules, authorities in Hong Kong, Switzerland and elsewhere have fallen far behind. Unless those regulators catch up by December, Dodd-Frank will apply to American banks doing business in those regions.

In a concession to Mr. Wetjen, Mr. Gensler agreed to delay the requirements, so the start date for most banks for the new rules would be Dec. 21. By soliciting additional comments from Wall Street, the agency also signaled that it was open to a longer delay.

The compromise traces to a plan that Mr. Chilton floated in June. While he noted that foreign regulators could use the additional time to catch up, he also argued that the agency should not delay indefinitely.

“Like in the movie ‘Field of Dreams,’ when the voice from the corn field says, ‘If you build it, he will come,’ ” Mr. Chilton said on Friday. “I’ve said repeatedly that if we and the E.U. build balanced and fairly harmonized financial regulatory regimes, the rest of the world will come.”

Zone to Test Renminbi as Currency for Trading

SHANGHAI — China has taken another step toward loosening its capital controls and making its currency more freely convertible by approving the creation of a new kind of free trade zone here.

China’s State Council, or cabinet, said it was establishing a pilot zone in Shanghai to test some of the government’s financial overhauls, including interest rate liberalization and full convertibility of China’s currency, the renminbi, according to reports Thursday in the state-run news media.

Analysts say the free trade zone will not just promote interest rate liberalization and currency convertibility but will also allow “financial product innovation” and the raising of money abroad or investment in foreign stocks by corporations.

Since taking office this year, Prime Minister Li Keqiang has been promising bold changes aimed at overhauling the economy and improving the nation’s global competitiveness.

In May, a State Council meeting presided over by Mr. Li said that by the end of the year the government would outline a plan for full convertibility of the renminbi and make it easier for Chinese individuals to invest. Still, many analysts say they believe that China’s currency will not be fully convertible until 2015 to 2018.

“The State Council expects this experiment as an essential step towards upgrading China’s economy,” Qu Hongbin, an economist at HSBC in Hong Kong, said in a report on Thursday. “It also expects the pilot’s eventual national rollout.”

It is unclear exactly how the free trade zone would operate, but businesses and traders in the zone would probably be more free to import and export goods without customs approvals, and to convert foreign currency into renminbi more freely.

The approval of the free trade zone is a lift for Shanghai, which in 2009 won State Council approval to become a financial center to compete better with Hong Kong, London, New York and Tokyo.

Although China has the world’s second-largest economy, after that of the United States, the government maintains strict controls over capital flows and cross-border investments. It also has tight control over interest rates.

The government does that, in part, to guard against perceived threats from international currency speculators and to prevent huge inflows or outflows of money from rocking the banking sector and the economy.

But the government is moving ahead with plans to integrate with the global economy more fully by loosening controls over interest rates and cross-border trade and investment deals.

Analysts say loosening of those controls could strengthen the financial system and make it more efficient.

The overhauls could also make it easier to trade the renminbi, setting the stage for it to rival the dollar some day as a reserve currency. The government controls its value, and beginning in 2005, Beijing began allowing the renminbi to strengthen against a basket of other major currencies, including the dollar.

Analysts say the experimental zone is another move toward allowing the global financial markets to determine to value of the renminbi, also known as the yuan.

After years of spectacular economic growth, China’s economy has been showing signs of weakening this year, and economists are warning about looming risks in the banking industry.

Shanghai, a city of 20 million, already has major ports and transportation hubs, and it is setting its sights on becoming a global logistics center. In 2005, Shanghai opened the first phase of the Yangshan Deep Water Port, which could eventually become the world’s largest shipping container port. The facility, projected to cost $18 billion, is on an island that is reached by a bridge that stretches 20 miles across the sea.

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: 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: Charmed Life Now Ensnared in a Trading Inquiry

8:55 p.m. | Updated

Friends of Michael S. Steinberg had always marveled at his good fortune.

In his mid-20s, he landed a job a SAC Capital Advisors, then a small hedge fund owned by Steven A. Cohen, who was fast developing a reputation on Wall Street as a stock trading wizard. As SAC posted stupendous returns year-after-year and became one of the world’s largest hedge funds, Mr. Steinberg earned tens of millions of dollars trading as a close associate of Mr. Cohen, and rose within the firm.

When Mr. Steinberg married at the Plaza Hotel a few years after joining SAC, his boss attended the black-tie affair. Mr. Steinberg and his family moved into an $8 million Park Avenue co-op and summered in the Hamptons. He also gave back, helping found Natan, a philanthropy that promotes Israel and Jewish culture.

Then, his charmed life came undone.

On Friday, Mr. Steinberg became the most senior SAC employee to be ensnared in the government’s multiyear insider trading investigation. F.B.I. agents showed up at his apartment on the Upper East Side of Manhattan and arrested him in the pre-dawn hours. Just the day before, Mr. Steinberg had returned from a vacation in Florida, where he and his family visited relatives and took a trip to Disney World.

Later on Friday, Mr. Steinberg, 40, in a black V-neck sweater and charcoal-gray slacks, appeared in Federal District Court in Manhattan and pleaded not guilty. Judge Richard J. Sullivan freed him on $3 million bail.

“Michael Steinberg did absolutely nothing wrong,” Barry H. Berke, a lawyer for Mr. Steinberg, said in a statement. “Caught in the cross-fire of aggressive investigations of others, there is no basis for even the slightest blemish on his spotless reputation.”

The arrest was the latest in a whirlwind of activity related to the government’s investigation of SAC. For years, federal agents have been building a case against the fund. This month, SAC agreed to pay $616 million to settle two civil insider trading actions brought by the Securities and Exchange Commission. On Thursday, a federal judge refused to approve the larger settlement of $602 million, raising concerns over a provision that lets SAC avoid an admission of wrongdoing.

Including Mr. Steinberg, nine current or former SAC employees have been linked to insider trading while at the company; four have pleaded guilty. Some of the former employees who have been implicated hardly knew Mr. Cohen, who operates a sprawling $15 billion fund with more than 1,000 employees across the globe.

But Mr. Cohen and Mr. Steinberg were close. Mr. Steinberg is one of SAC’s most veteran employees, though he was recently placed on leave soon after being tied to an earlier case. He joined SAC shortly after graduating from the University of Wisconsin. When he began at SAC, it was just Mr. Cohen and several dozen traders. For years, he sat near Mr. Cohen on the trading floor in the fund’s headquarters in Stamford, Conn., and he was part of a team of tech-stock traders that posted outsize returns during the dot-com boom and bust. Later, he helped start Sigma Capital, an SAC unit in Midtown Manhattan.

While years apart, the two share the same hometown — Great Neck, N.Y., on Long Island, where both attended Great Neck North High School. They also share a love of art; Mr. Steinberg introduced Mr. Cohen to his childhood friend Sandy Heller, who became Mr. Cohen’s longtime art adviser.

In the past, SAC has distanced itself from former employees charged with insider trading, but on Friday, it issued a statement in support of Mr. Steinberg: “Mike has conducted himself professionally and ethically during his long tenure at the firm. We believe him to be a man of integrity.”

Federal investigators have tried to press lower-level SAC employees for information in helping them build a case against Mr. Cohen. In one instance, F.B.I. agents showed a former trader a sheet of paper with headshots of his former colleagues, with Mr. Cohen at the center. The agents compared the SAC founder to an organized-crime boss who sat atop a corrupt organization.

The pressure on Mr. Cohen, 56, escalated in November, when prosecutors charged Mathew Martoma, a former SAC portfolio manager, with trading in the drug stocks Elan and Wyeth based on confidential drug trial data that a doctor had leaked to him. Mr. Cohen was involved in drug stock trades, but the government has not claimed that he possessed any secret information. Those trades were the subject of the S.E.C. civil action that SAC settled for $602 million. Mr. Martoma has pleaded not guilty and has refused to cooperate with investigators.

Mr. Cohen has not been accused of any wrongdoing and has told his investors that he believes he has acted appropriately at all times.

Amid his legal woes, Mr. Cohen, whose net worth is estimated at about $10 billion, has gone on a shopping binge in recent days, paying $155 million for the Picasso painting “Le Rêve” and $60 million for an oceanfront estate in East Hampton on Long Island.

Mr. Steinberg’s name surfaced last fall, when a former SAC analyst pleaded guilty to being part of an insider-trading ring that illegally traded the technology stocks Dell and Nvidia. As part of his guilty plea, the analyst, Jon Horvath, implicated Mr. Steinberg, saying that he gave the confidential information to Mr. Steinberg and that they traded based on that data. On Friday, federal prosecutors charged Mr. Steinberg with conspiracy and securities fraud, accusing him of participating in the illegal Dell and Nvidia trades. The Securities and Exchange Commission filed a parallel civil lawsuit against Mr. Steinberg.

Last year, a jury convicted two hedge fund managers at other firms related to the Dell and Nvidia trades. E-mails from Mr. Steinberg that emerged in that trial were included in the indictment on Friday.

In one e-mail from August 2008, sent a few days before Dell’s quarterly earnings announcement, Mr. Horvath disclosed secret details about Dell’s financial data to Mr. Steinberg.

Mr. Horvath wrote that he had “a 2nd hand read from someone at the company.” He added, “Please keep to yourself as obviously not well known.”

Mr. Steinberg replied: “Yes normally we would never divulge data like this, so please be discreet.”

In another e-mail from the trial, Mr. Steinberg told Mr. Horvath and another portfolio manager, Gabe Plotkin, about a conversation he had with Mr. Cohen about conflicting views of Dell inside SAC. Mr. Plotkin owned a large Dell position, while Mr. Steinberg was short, meaning that he thought shares of Dell would drop in value.

“Guys, I was talking to Steve about Dell earlier today and he asked me to get the two of you to compare notes before the print” — meaning ahead of the company’s earnings release — “as we are on opposite sides of this one,” Mr. Steinberg wrote.

Since his name surfaced in the investigation, Mr. Steinberg has occasionally spent evenings in New York hotels to avoid being handcuffed at home in front of his two children. Federal agents refused to let Mr. Steinberg surrender of his own volition at F.B.I. headquarters downtown, expressing the view that white-collar defendants should not be given special treatment.

John Marshall Mantel for The New York TimesMichael Steinberg entered a plea of not guilty in Federal District Court in Manhattan on Friday and was freed on $3 million bail.

This post has been revised to reflect the following correction:

Correction: March 29, 2013

Because of incorrect information supplied by prosecutors, an earlier version of this article gave the wrong age for Michael Steinberg, the SAC Capital Advisors portfolio manager who was arrested on Friday. He is 40, not 41.

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.