Insider trading trial offers glimpse of hedge fund trenches


The hedge fund trenches are not a pleasant place to be.

That would appear to be the message so far in the trial of Todd Newman, formerly of Diamondback, and Anthony Chiasson, the co-founder of the hedge fund Level Global. As of now, the trial of Newman has proven to be anything but a run-of-the-mill insider trading trial (there have been so many). At times, it has instead offered a compelling human drama featuring Jesse Tortora, once an underling to Newman. He's the government's key witness against Newman, and has provided some interesting details about trench warfare at some hedge funds.

Should we be surprised about allegations that Newman arranged $175,000 in payments to the wife of a stock analyst who was providing insider information about Dell?

Tortora, who has already pled guilty to insider trading, painted a picture of a classic boss from hell, with whom he fell out. The defense has tried to portray his motive as one of revenge against a boss he hated.

"There was testimony about a nasty phone exchange between Mr. Tortora and Mr. Newman around his departure date. Mr. Tortora acknowledged that he told Mr. Newman during the call, 'You're going to have to see me at conferences.'"

Newman's lawyer "suggested that Mr. Tortora meant that as a physical threat, but Mr. Tortora denied that he meant it in that way," according to DealBook.

We'll see if the jury buys the defense's "revenge" idea. There's a message to us all here: In the general scheme of office relationships, you don't want to alienate your underlings for lots of reasons, one of which is that you never know if they'll end up in a position to get back at you. I'm not saying that's what Newman is doing, but what goes around, comes around, as they say.

For more:
- here's a DealBook article
- here's a Bloomberg article

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