Right Now, The FBI Is Making Arrests In A Brand New Chapter Of The Hedge Fund Insider Trading Scandal

fbi raid

Seven people have been charged in a wide reaching insider trading probe that has been brewing since 2010.

Of those seven, three people have been arrested, one surrendered, and three others have not been arrested as they cooperated with authorities, according to the FBI.

It all went down this morning, and here’s how the arrests started:

A WSJ report said authorities “tried” to arrest Anthony Chiasson a co-founder of Level Global early this morning but he wasn’t home. However, The NYT reports that he has surrendered to authorities.

Level Global was started by Chiasson and fellow SAC Capital vets David Ganek. At its peak the fund had $4 billion under management, but shut down after the FBI raided its office. David Ganek is the son of Howard Ganek, a former partner Neuberger and Berman. One analyst at Neuberger and Berman has been implicated in this case.

Reuters’ Katya Wachtel reported that Todd Newman, a portfolio manager at another implicated hedge fund, Diamondback Capital, had also been arrested. Newman joined Diamondback in 2006 after working as a tech stock analyst at Paul Tudor Jones’ Tudor Investments.

As for Diamonback, one of their portfolio managers, Anthony Scolaro, pleaded guilty to one count of securities fraud in May of last year. According to his plea agreement, he was/is cooperating with authorities.

Two others were also arrested this morning: Jon Horvath, who worked at Sigma Capital, a unit of Steve Cohen’s SAC Capital Advisors and Danny Kuo, a vice president and fund manager at the Whittier Trust. Kuo was in Los Angeles, the New York Times reports.

Kelly Langmesser, FBI spokesperson told Business Insider that three more were charged, but because they cooperated with authorities, they were not arrested. One is Sandeep Goyal. The other two are former analysts at Level Global and Diamondback, Spyridon “Sam” Adondakis and Jesse Tortora.

Adondakis and Tortora are the ones who told investigators that California-based firm Primary Global ResearchLLC, was charging the Wall Street firms to arrange calls between investors and public employees. That, in short, is what this base is all about.

Diamondback Capital and Level Global were both clients of a California company called Primary Global, an “expert network” company that had its phones wire-tapped starting in 2009. Both hedge funds allegedly paid Primary Global over $150,000 for inside information on companies (i.e. corporate earnings).

Here’s an example what kind of information we’re talking about:

From The WSJ:

Last month, federal prosecutors in Manhattan said in a court filing in the case of a Primary Global Research employee that Level Global had made a $1.7 million profit by covering a short position it had in Taiwan Semiconductor Manufacturing Co. Ltd. in June 2009. That May and June, a Level Global technology analyst had about seven phone calls with Manosha Karunatilaka, a Primary Global Research expert who worked at TSMC and has pleaded guilty to supplying inside information to investment-fund clients, prosecutors said.

Famed U.S. Attorny Preet S. Bharara is handling the case and he’s won 50 insider trading convictions in his career, so expect a battle on this one.

Bottom line: This probe is HUGE and implicates a lot of SAC vets, including Chip Skowron a former Front Point portfolio manager who plead guilty to insider trading last summer. You can see a complete list of people and firms involved in this investigation (whether directly or indirectly) here. You’ll recognise some names like Goldman Sachs, Credit Suisse and Citadel.

You can read the complaint against Newman, Todd et. al below:

Newman, Todd, Et Al. Complaint