Diamondback Dodges Criminal Charges, Resolves Insider Trading Case

(January 24, 2012) — Diamondback Capital Management has avoided criminal charges and has agreed to shell out a total of $9 million to the government to put an end to an insider-trading investigation involving Dell Inc. and Nvidia Corp. stock.

The agreement, subject to court approval, is the latest in a long string of high-profile cases aimed at thwarting insider trading among hedge funds and would resolve a January 18 Securities and Exchange Commission (SEC) lawsuit over trades made in 2008 and 2009 by former employees at Diamondback.

The government agreed to spare the Stamford, Conn.-based hedge fund of criminal charges, citing the fund’s ready cooperation and voluntary adoption of remedial measures. The fund has agreed to enter into a nonprosecution agreement with the Justice Department in connection with a criminal investigation. Under the proposed settlement, according to the SEC, Diamondback will additionally pay a $3 million civil penalty. Furthermore, Diamondback consented to a judgment that permanently enjoins it from future violations of federal anti-fraud laws.

“We are pleased to have reached a prompt resolution of the charges against Diamondback,” said George S. Canellos, Director of the SEC’s New York Regional Office, in a statement. “If approved by the court, 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.”

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Last week, the SEC accused Diamondback along with two of its former employees, another hedge fund, and five other individuals of civil insider-trading violations. Federal prosecutors announced criminal charges against seven individuals, accusing them of a massive insider trading scheme. “Today’s charges illustrate something that should disturb all of us: They show that insider trading activity in recent times has, indeed, been rampant and routine and that this criminal behavior was known, encouraged and exploited by authority figures in several investment funds,” United States Attorney Preet Bharara told a news conference following the charges. According to prosecutors, the alleged scheme, which involved trades in Dell Inc., led to a total of $61.8 million in illegal profits.

The SEC issued a released stating:

“The SEC alleges that a network of closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP illegally obtained the material nonpublic information about Dell and Nvidia. Investment analyst Sandeep ‘Sandy’ Goyal of Princeton, N.J., obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008. Goyal tipped Diamondback analyst Jesse Tortora of Pembroke Pines, Fla., with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.”

In 2010, Diamondback was raided by Federal Bureau of Investigation agents as part of a criminal insider-trading probe.

(January 24, 2012) — Poor capital market infrastructure and limited liquidity in African companies are larger concerns for institutional investors already investing in the continent than fears about bribery and corruption, a survey by Middle Eastern investment asset manager Invest AD along with the Economist Intelligence Unit has found.

Invest AD said that although investors who did not allocate to the region were mostly concerned about perceived problems with bribery and corruption, those who already invested in the continent considered it a lesser problem.

Only a third of investors already allocating funds to Africa considered bribery and corruption as the major obstacle to accessing companies in the region, compared to 64% of those not yet invested there.

Across the board, illiquidity in African markets was cited as the third biggest hurdle to investors, beating concerns over political risk.

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Robert Mitchell, Contributing Editor at the Economist Intelligence Unit, which co-authored the survey, said: “Investors already in Africa are more worried about a lack of liquidity, trade execution by institutions in the region, and the local regulatory environment than the perceived risk of corruption, which is the main concern to investors new to the region.”

Mitchell said better cooperation and integration between exchanges on the continent would help open up markets to new investors, who were growing ever-more confident about Africa. The survey showed that institutional investors were keener on Africa than any other frontier market.

Furthermore, of the 158 investors surveyed in August and September last year, 21% had no current exposure to Africa, but only 1% said they would remain outside of the content in three years’ time. By the end of 2016, every investor said they would have entered the continent, with over a third saying they would have allocated more than 5% of their total assets to African companies and projects.

Mohammed Al Hashemi, Head of Asset Management at Invest AD, said: “Technically, these markets are still some time away from European standards, but they are progressing more quickly than people think.”

Al Hashemi said African market participants and regulators were willing to learn and adopt practices that had been implemented elsewhere, including other frontier and emerging markets, that had followed the same path.

He said: “In this case, history does repeat itself and they can overlay the benefit of hindsight.”

The survey was conducted with institutional asset owners with assets ranging from multi-million dollar to multi-billion dollar portfolios.