Commission announces new insider trading investigation following earnings leaks at Dell and NVIDIA
The SEC has announced another sweeping insider trading case with the indictment of seven individuals who allegedly reaped $78 mn in illicit trading gains by seeing in advance quarterly earnings at Dell and NVIDIA during 2008 and 2009.
The case is ‘a stunning portrait of organized corruption on a grand scale,’ according to Manhattan US Attorney Preet Bharara.
The Dell tips allegedly came through former employee Sandeep Goyal, who was a manager of corporate planning at Dell for approximately three years before going to work as an investment analyst at Prudential.
He later joined another firm that press reports have identified as Neuberger Berman in New York.
Chilling reading for IR
The SEC complaint makes chilling reading for any IRO, with descriptions of frequent phone conversations between a Dell insider and Goyal in the days and weeks leading up to Dell’s two earnings announcements.
The SEC complaint does not identify either the Dell insider or the source of the NVIDIA leaks.
According to press reports, Dell has issued a statement saying it ‘has cooperated’ with government authorities.
The statement adds: ‘If the allegations are accurate, the action was a clear violation of Dell’s policy regarding disclosure of material, non-public information.
‘All Dell employees are required annually to complete training on the company’s code of conduct, which includes a section on insider trading.’
Earnings passed along
According to the SEC complaint, Goyal obtained quarterly earnings information and other performance data from an insider at Dell in advance of first and second quarter earnings announcements in 2008.
He then passed them on to a hedge fund manager at Connecticut-based Diamondback Capital Management, which allegedly passed the information to other associates in the network.
The Q1 tips led to profitable buys, the SEC alleges, as Dell beat expectations, while the Q2 tips led to profitable shorts and put purchases as Dell’s gross margins missed forecasts. Profits on the Dell trades totaled $62.3 mn, according to the complaint.
For his role in the scheme, Goyal was allegedly paid $175,000 in soft-dollar payments that were deposited in the brokerage account of an individual affiliated with him.
Whittier Trust manager accused
The SEC further alleges that Danny Kuo, vice president and fund manager at a separate fund – which press reports have identified as Whittier Trust Company – was one of the recipients of the Dell insider tips.
He subsequently obtained inside information about NVIDIA’s calculation of its revenues, gross profit margins and other financial metrics in advance of the company’s Q1 2010 earnings announcement, which was made in May 2009, the SEC complaint alleges.
Kuo then allegedly passed the NVIDIA information on to some of the same network. Trading gains for all participants totaled $15.7 mn. Kuo’s insider trades in Dell and NVIDIA resulted in approximately $270,000 in ill-gotten gains.
At the center of the alleged ring was Anthony Chiasson, a co-founder of hedge fund Level Global Investors.
