Dell stock caught up in massive insider trading probe

Two former Dell employees were part of a $62 million (£40 million) insider trading scam, involving the company's shares as well as Nvidia stock, according to the FBI.

The news comes as the US authorities step up their pursuit of inside traders. Two months ago, Galleon hedge fund founder Raj Rajaratnam was sentenced to 11 years in jail for his role in a scam involving AMD, IBM and 3Com stock.

Yesterday, Sandeep Goyal, an employee at Dell's US headquarters between 2006 and 2007 before becoming a financial analyst, was arrested. An unnamed co-conspirator in Dell's investor relations department from 2007 to 2009 is also alleged to have been part of the scam. The co-conspirator has not been arrested, it is understood.

Goyal allegedly made $175,000 by providing inside information about Dell to a hedge fund. He has pleaded guilty to charges of securities fraud.

Jesse Tortura, a former analyst at Diamondback, and Spyridon Adondakis, formerly at Level Global, have also pleaded guilty.

Seven men in total are allegedly implicated in the scam, including Todd Newman, a senior manager with the Diamondback Capital Management hedge fund, and Anthony Chiasson, a co-founder at Level Global investors. Newman oversaw IT stock investments at Diamondback. Chiasson's Level firm principally trades in IT and finance shares. Both were arrested yesterday.

Jon Horvath, an employee at hedge fund Sigma Capital Management, and Danny Kuo of Whittier Trust, were also allegedly part of the scam. Both hedge funds trade in a range of share types.

All seven were charged with conspiracy to commit securities fraud, relating to profits made from trading Dell and Nvidia stock in 2008 and 2009.

Authorities even produced an email from Kuo to Adondakis, Tortura and Horvath, in which he openly states that he is providing insider information.

In one instance of profit from the scam, Level Global allegedly made $57 million from a tip ahead of Dell's results – which authorities branded as the largest single profit ever from inside information.

Dell said in a statement that it "has cooperated with government authorities". It added: "All Dell employees are required annually to complete training on the company's Code of Conduct, which includes a section on insider trading. Violations of these policies are treated seriously, and violations result in disciplinary action up to and including termination."

FBI assistant director Janice Fedarcyk said: "The FBI has arrested more than 60 people in 'Operation Perfect Hedge' [the hedge fund insider trading probe] to date, and this initiative is far from over.

"If you are engaged in insider trading, what distinguishes you from the dozens who have been charged is not that you haven't been caught; it's that you haven't been caught yet."

It is understood that Horvath will contest the charges. The other men have not commented.

Level Global went out of business last year following an FBI raid, and the other firms have not commented.

The seven men each face up to 20 years in prison, if convicted.

In a separate incident, the FBI today arrested Bo Zhang, a computer programmer on contract at the Federal Reserve Bank of New York, for allegedly stealing proprietary code.

Copyright © 2012 IDG Communications, Inc.

8 highly useful Slack bots for teams
Shop Tech Products at Amazon