January 19, 2011 / 3:39 PM / 7 years ago

Chiesi admits "crossing the line" in Galleon case

<p>Danielle Chiesi, a principal defendant in the Galleon hedge fund insider trading investigation, gets into her car after leaving the Federal Courthouse where she pleaded guilty to criminal charges in New York January 19, 2011. REUTERS/Jessica Rinaldi</p>

NEW YORK (Reuters) - A key defendant in the Galleon hedge fund insider trading case pleaded guilty to criminal charges on Wednesday, tearfully admitting to “crossing the line” by leaking information on stocks including IBM and Advanced Micro Devices.

Danielle Chiesi, a former hedge fund trader, was arrested along with Galleon hedge fund founder Raj Rajaratnam in October 2009 in what officials call the biggest probe of insider trading at hedge funds in the United States.

Chiesi is accused of providing Rajaratnam with some of the confidential information that the government accuses him of trading on -- evidence gathered in secretly recorded telephone conversations between them and others in a long-running probe of the industry. Her guilty plea comes a month before Rajaratnam goes on trial.

“I am deeply ashamed by what I did,” Chiesi, 45, said during a 30-minute plea proceeding in U.S. District Court in New York. “By crossing the line on those occasions, I ruined a 20-year career in my field and brought disrepute to what was an honorable profession.”

“I apologize to the court and I take full responsibility,” she said, adding that “this guilty plea causes me great pain.”

Chiesi wore a dark pant suit and white blouse, and cried as her mother, sister and two nieces watched from the public benches.

She admitted to three counts of conspiracy to commit securities fraud before U.S. District Judge Richard Holwell. The same judge is presiding over the criminal trial of Rajaratnam starting on February 28.

Chiesi, who used to work for New Castle Funds LLC, could serve up to four years in prison under the terms of a plea agreement. Her lawyer, Alan Kaufman, said outside the courtroom that Chiesi had not agreed to cooperate with the government in the Galleon probe and that prosecutors had not asked her to.

Sri Lankan-born Rajaratnam has pleaded not guilty in a case that federal prosecutors in New York describe as the biggest probe of insider trading at hedge funds in the United States.

The probe also marked the most extensive use of wiretaps in a white-collar criminal case, authorities said.

Chiesi told the judge that in 2008 and early 2009 she had nonpublic material information on IBM Corp, Advanced Micro Devices and Sun Microsystems that she shared with her boss at New Castle, Mark Kurland, and other people in the hedge fund industry.

PSYCHOLOGICAL IMPACT

<p>Danielle Chiesi (L), a principal defendant in the Galleon hedge fund insider trading investigation, leaves the Federal Courthouse after pleading guilty to criminal charges in New York January 19, 2011. REUTERS/Jessica Rinaldi</p>

Duke University law professor Samuel Buell, a former lead prosecutor in the U.S. Justice Department’s Enron task force, said Chiesi’s plea was unlikely to have a major impact on the trial strategies of remaining defendants.

“It might have a mild psychological effect on the defendants themselves,” said Buell. “They may think Chiesi had thought she was able to beat this case, and now changed her mind, so that might cause other defendants to second-guess themselves.”

The judge said Chiesi signed a plea agreement that includes prison sentence guidelines of 37 months to 46 months.

Prosecutors alleged after her October 16, 2009 arrest that she made about $4 million in illegal profits, but on Wednesday, her lawyer said she did not trade for her own account and that her eventual forfeiture would be “a very, very low number.”

<p>Danielle Chiesi (L), a principal defendant in the Galleon hedge fund insider trading investigation, leaves the Federal Courthouse after pleading guilty to criminal charges in New York January 19, 2011. REUTERS/Jessica Rinaldi</p>

Kaufman, of Kelley Drye & Warren LLP, said in a statement that Chiesi passed on confidential information to Kurland, her boss at Castle. Kurland “authorized trades for the hedge fund. She did not trade for her own account,” Kaufman said.

Sentencing was set for May 13.

Chiesi was set to go on trial on April 25. She could have faced a maximum possible sentence of 25 years imprisonment if she had gone to trial on charges of conspiracy and securities fraud.

Kurland, who pleaded guilty, was the first Wall Street executive to be sentenced in the sprawling probe on May 21 last year when Judge Victor Marrero ordered him imprisoned for 27 months. [ID:nN21172285]

Chiesi had an affair with Robert Moffat, a former IBM executive charged in the case, according to court records.

Moffat gave her tips in August and September 2008 about IBM’s licensing of a deal involving AMD, details of IBM server sales and also earnings information about Lenovo Group Ltd while he was a nonvoting board member.

Moffat is serving a six-month prison sentence after pleading guilty.

The case is USA v Raj Rajaratnam and Danielle Chiesi, U.S. District Court for the Southern District of New York, No. 09-01184.

Additional reporting by Matthew Goldstein and Jonathan Stempel. Editing by Robert MacMillan, John Wallace and Andre Grenon

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below