Seven men connected by friendship or business association were arrested this week for allegedly participating in insider trading, the Federal Bureau (FBI) of Investigation announced in a candid press release. These latest arrests are the most recent developments in "Operation Perfect Hedge," the FBI's systematic targeting of insider trading in the hedge fund industry that began more than four years ago.
According to the FBI's statement , the seven men "knew ahead of time which way the stock in Dell or Nvidia would move once quarterly earnings figures were officially announced. When you have the answer sheet beforehand, it’s pretty hard not to ace the test. But cheating on the test and getting away with cheating on the test are two different things."
The FBI is receiving assistance in its investigation from Sandeep Goyal, a junior research analyst at the Manhattan office of Neuberger Berman, an investment management firm, who has pleaded guilty to committing securities fraud. Analysts Jesse Tortora and Spyridon Adondaki also pleaded guilty and each face a maximum sentence of 25 years in prison.
"Goyal had the direct connection to the Dell Insider," the FBI said. "Goyal passed along Dell quarterly earnings information to Tortora and defendant Todd Newman at Hedge Fund A. In compensation for this, Tortora and Newman arranged to pay Goyal a total of $175,000 in 2008 and early 2009, using 'soft dollars' and an intermediary to conceal the deal. Hedge Fund A reaped $3.8 million in illegal profits from advance knowledge of positive Dell news for the first quarter of fiscal year 2008 and negative news for the second quarter."
The insider trading scheme runs much deeper than that and includes additional hedge funds, but short and to the point, these guys (allegedly) did the crime and now stand to do some serious time.