Level Global Investors LP co-founder Anthony Chiasson was sentenced to 6 1/2 years in prison for using illegal tips funneled to him from analysts and company insiders to make $68 million for his hedge fund.

U.S. District Judge Richard Sullivan handed down the sentence today in Manhattan federal court, setting aside more severe recommendations by prosecutors and federal guidelines. Sullivan presided over the six-week jury trial that ended in Chiasson’s conviction for conspiracy and securities fraud.

Chiasson, 39, of New York, began his career on Wall Street at Salomon Brothers and later left Steven A. Cohen’s SAC Capital Advisors LP to start his own hedge fund. He had asked Sullivan to impose a prison term shorter than the 10 to 13 years recommended by the guidelines. Sullivan, who said today that the proper range was eight to 10 years, still chose a lesser term.

“It is not embezzling, but it was cheating to realize tremendous profits of tens of millions of dollars,” he told Chiasson at the hearing. Sullivan rejected Chiasson’s request to remain free while he appeals and ordered him to surrender in 90 days, recommending a federal prison camp in Otisville, New York. He also ordered Chiasson pay a $5 million fine and would order forfeiture to be determined at a later date.

Six others charged with being part of the insider-trading ring have pleaded guilty and are cooperating with a U.S. probe increasingly focused on Stamford, Connecticut-based SAC Capital and Cohen, its founder. The cooperators include Jon Horvath, a former analyst at SAC’s Sigma unit. In March, Michael Steinberg, an SAC portfolio manager to whom Horvath reported, was indicted for insider trading. He has pleaded not guilty. Cohen, 56, hasn’t been charged with a crime and has denied any wrongdoing.

In November, the U.S. charged Mathew Martoma, a former fund manager for SAC’s CR Intrinsic Investors, with what prosecutors called the biggest insider-trading scheme in history. Manhattan U.S. Attorney Preet Bharara said Martoma helped SAC make $276 million on illegal tips about an Alzheimer’s drug by trading in shares of Elan Corp. and Wyeth LLC.

SAC agreed to pay $600 million to settle a Securities and Exchange Commission lawsuit tied to Martoma’s insider-trading at the fund’s CR Intrinsic unit. Martoma has pleaded not guilty and is awaiting trial.

Chiasson Sentence

Chiasson’s prosecutors said in a sentencing memo that the hedge fund manager should serve eight to 10 years, arguing he was a member of a “criminal club that exchanged inside information about multiple technology stocks over nearly a two- year period.”

Defense lawyers cited his charitable work, including his effort to keep open his Catholic Jesuit high school in Portland, Maine, the creation of a scholarship program for his alma mater, Babson College, and contributions to the Robin Hood Foundation and the Michael J. Fox Foundation.

The government wrote that after Chiasson hired Spyridon “Sam” Adondakis to work as his analyst at Level Global, he received and traded on a constant flow of illegal tips on Dell Inc. and Nvidia Corp., earning at least $68 million.

Conspiracy, Fraud

Chiasson was convicted of one count of conspiracy and five counts of securities fraud in December. Level Global, based in Greenwich, Connecticut, agreed in April to pay more than $21 million to settle regulatory claims filed by the SEC.

Prosecutors said Chiasson and his co-defendant, former Diamondback Capital Management LLC fund manager Todd Newman, 48, were part of a group of portfolio managers, fund analysts and technology company insiders who shared material nonpublic information about the firms and then traded on them. Newman was convicted and sentenced this month to 4 1/2 years in prison.

Chiasson’s lawyers argued their client deserved a sentence comparable to others convicted of insider trading, such as former Goldman Sachs Group Inc. director Rajat Gupta, who was ordered to serve two years in prison, and former Primary Global Research LLC executive James Fleishman and Michael Kimelman, the co-founder of Incremental Capital LLC, who were both given 30- month prison terms.

‘Draconian’

Chiasson’s attorneys argued that the 10 to 13 years recommended by the guidelines is “Draconian,” Chiasson’s crimes were “aberrant” and he has led an “exemplary life.”

They estimated that Level Global earned only $11.7 million as a result of trading in the stocks of Round Rock, Texas-based Dell and Santa Clara, California-based Nvidia. They argued that federal sentencing guidelines wrongly allowed prosecutors to inflate profits generated as a result of alleged crimes.

“There is only one reason the range is so high: the guidelines’ unrelenting predisposition to punish profit,” Chiasson’s lawyers, Greg Morvillo and Reid Weingarten, said in a sentencing memo to the court.

Morvillo and Weingarten also argued Chiasson “should not be required to forfeit gains of any co-conspirators.”

They alleged in court papers that the fund earned more than $21.6 million on trades by David Ganek, a Level Global co- founder who was ruled by Sullivan to be an uncharged co- conspirator in the insider-trading scheme. Ganek hasn’t been charged with a crime and has denied any wrongdoing.

Adondakis, who pleaded guilty in a related case, testified that he didn’t tell Ganek about the source of his tips.

“David’s trades were perfectly legal as is demonstrated by three facts: the case is over and the government did not charge him, the star witness testified that David wasn’t involved in any conspiracy and the lead FBI agent testified that David was never implicated,” John Carroll, Ganek’s lawyer, has said.

The case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).