Assistant U.S. Attorney Richard Tarlowe said both men benefitted from a “corrupt chain of people who shared secret inside information” with one another.
He said Chiasson made about $50 million and Newman recorded a $2.8 million profit for his hedge fund when both learned that Dell Inc. was going to disappoint investors when it announced in the summer of 2008 that gross margins were lower than expected. Tarlowe said prosecutors would show jurors emails, instant messages, summaries of stock trades and phone records to support the testimony of four individuals who were part of the insider trading chain.
The witnesses “will give a unique window into criminal activity that only a participant can provide,” he said.
At a news conference in January, U.S. Attorney Preet Bharara said the Dell trades represented the largest transaction ever prosecuted in Manhattan. He said it was part of a $78 million scheme.
At one point during his opening statement, Tarlowe told jurors: “We will take you into the world of hedge funds.”
Chiasson’s defense lawyer, Reid Weingarten, suggested he will do the same by describing a highly competitive hedge fund industry that relies on analysts with inflated egos who compete ferociously to get information that others don’t have, sometimes through insiders at public companies and 6through other research.
“These people can become famous,” he said of the analysts, including one accused in the scheme who was paid $2 million in 2008. “They are highly, highly paid.”
Chiasson also was paid well, Weingarten said, making “A-Rod-type money” in 2007, a reference to the more than $20 million annual salary of New York Yankees slugger Alex Rodriguez.
Weingarten said it was not unusual to get information from public companies that stage road shows and seek attention from analysts and others in a quest to raise money.
He blamed Sam Adondakis, a former Level Global analyst who has pleaded guilty in the case, for his client’s trouble, saying he was leading a double life by portraying himself as a responsible analyst to Chiasson and others while making dirty deals to get information he should not have.
The lawyer said Chiasson’s Dell bet was consistent with his contrarian nature and common sense, since Dell’s stock had run up unreasonably before its drop after earnings. He also said the Dell trade was not unusual for a $4 billion hedge fund.
Stephen Fishbein, Newman’s lawyer, said his client had no idea that a corrupt analyst was feeding him inside information, since he disguised it as legitimate research.
He noted that Newman made more than 32,000 trades in 366 securities in 2008.
He said talking to company insiders was common in the industry and was “a perfectly acceptable way to do research.”
Fishbein said he would prove through his client’s trades, which included gains and losses in the same stocks, that he did not know secrets.
“Newman did not trade as if he was getting tomorrow’s news today,” he said.