Diamondback Capital Management LLC has agreed to pay more than $9 million to the Securities and Exchange Commission (SEC) to settle insider-trading charges, SEC officials said today.
The Stamford, Conn.-based hedge fund company has also entered into a non-prosecution agreement with federal prosecutors in a parallel criminal investigation, federal authorities said.
Under Diamondback's proposed settlement, the money manager will pay more than $6 million in alleged illegal gains and a $3 million civil penalty, the SEC said. The SEC accused Diamondback, two of its former employees, another hedge fund and five other individuals of insider-trading violations in a civil action filed last week.
The proposed settlement would resolve charges of insider trading by Diamondback in shares of Dell Inc. and Nvidia Corp. in 2008 and 2009.
The SEC filed claims against Diamondback and two former employees last week as part of a wider insider trading cases that involves five different hedge funds and investment firms, SEC officials said.The SEC claimed that former Diamondback portfolio manager Todd Newman learned inside information about Dell's earnings in 2008 from Jesse Tortora, another former Diamondback employee.
The settlement is subject to approval by a U.S. District Court judge, according to the SEC. Diamondback was raided by Federal Bureau of Investigation agents in November 2010 in connection with a wide-ranging criminal insider-trading probe, but it hasn't been criminally charged.
"We believe that the proposed settlement appropriately sanctions the misconduct while giving due credit to Diamondback for its substantial assistance in the government's investigation and the pending actions against former employees and their co-defendants," said George S. Canellos, director of the SEC's New York regional office.
The SEC last week filed insider-trading charges against Diamondback, a second hedge fund advisory firm, Level Global, and seven individuals, including a former Diamondback analyst and former Diamondback portfolio manager.
The charges stem from the SEC's ongoing investigation into the trading activities of hedge funds, said Sanjay Wadhwa, associate director, of SEC's New York Regional Office and deputy chief of its market abuse unit. Since it is an ongoing investigation, Wadhwa said the SEC is not at liberty to disclose the names of any of the other companies being investigated.
In reaching the settlement SEC officials said they took into account that Diamondback has cooperated with investigators, including allowing the SEC to interview company staff. Diamondback Capital's lawyers have also reviewed the company's communications and analyzed the company's trading patterns to uncover any suspicious trading activity. A summary of the investigation's findings will be given to federal investigators.