Bay Area Man Pleads Guilty to Securities Fraud by Insider Trading in The Walt Disney Company’s Acquisition of Marvel Entertainment in August 2009

LOS ANGELES—A San Francisco man who made approximately $192,000 in profits by purchasing Marvel Entertainment Inc. stock options immediately prior to its acquisition by The Walt Disney Company in August 2009 pleaded guilty this morning to a federal securities fraud charge.
Toby G. Scammell, 29, pleaded guilty today to one count of securities fraud before United States District Judge S. James Otero.
According to a plea agreement filed in federal court, Scammell learned that Disney planned to acquire another company “that people would recognize right away” from his then-girlfriend, who was an extern at Disney in the summer of 2009 and who worked on the deal to acquire Marvel. Scammell later learned from a supervisor at his then-employer—which had periodically provided corporate consulting services to Disney and had confidentiality obligations to Disney—that Disney had previously been interested in acquiring Marvel. Scammell admitted that he learned the planned acquisition by Disney was estimated to close by Labor Day 2009, based on his observations of his girlfriend’s work schedule at Disney and their own travel plans at the time.
Scammell used the information that he learned from his girlfriend to acquire 659 call options to purchase Marvel stock for $5,465. He purchased more than half the options in his brother’s account. Scammell did not tell his girlfriend or his brother about the purchases of the Marvel call options.
Marvel’s stock rose approximately 25 percent after the deal with Disney was announced on August 31, 2009. After the acquisition was publicly disclosed by Disney, Scammell immediately sold his options, realizing more than $192,000 in profits. Scammell transferred $100,000 of the profits out of his brother’s account to conceal the trading and profits from his brother.
As a result of the guilty plea, Scammell faces a maximum statutory sentence of 25 years in federal prison when he is sentenced by Judge Otero on July 28, 2014.
Today’s guilty plea resolves a case filed in October 2013 when a federal grand jury returned an indictment that named Scammell.
Scammell was previously charged with securities fraud by the Securities and Exchange Commission in a civil lawsuit filed in August 2011. He was later ordered to disgorge his trading profits and pay civil penalties and interest totaling $800,985 in that case.
This case was investigated by the Federal Bureau of Investigation, which received assistance from the Securities and Exchange Commission.

Two Defendants Sentenced to Prison in Insider Trading Scheme

NEWARK, NJ—The two primary traders in an extensive insider trading network were sentenced to prison today for repeatedly using information divulged by insiders at pharmaceutical/medical technology firms operating in New Jersey, U.S. Attorney Paul J. Fishman announced.
Lawrence Grum, 50, of Livingston, New Jersey, was sentenced to one year and one day in prison, and Michael Castelli, 50, of Morris Plains, New Jersey, was sentenced to nine months in prison. Grum previously pleaded guilty before U.S. District Judge Katharine S. Hayden to an information charging him with two counts of conspiracy to commit securities fraud and four counts of securities fraud. Castelli previously pleaded guilty before Judge Hayden to an information charging him with two counts of conspiracy to commit securities fraud and five counts of securities fraud. Judge Hayden imposed both sentences today in Newark federal court.
According to documents filed in this case and statements made in court:
From 2007 to 2012, Grum and Castelli executed numerous, profitable trades based on inside information fed to them by their friend, Mark Cupo, 53, of Morris Plains, who was an executive at Sanofi-Aventis, a global pharmaceutical company with United States operations based in New Jersey. Cupo, in turn, obtained much of the inside information from his friend and former employee, John Lazorchak, 43, of Long Valley, New Jersey, who was director of financial reporting at Celgene Corp., another global pharmaceutical company based in New Jersey. Lazorchak also obtained certain inside information from Mark Foldy, 44, of Morris Plains, a friend and former high school classmate of Lazorchak who was a marketing executive at Stryker Corp., a leading medical technology business with a major division located in New Jersey.
During the course of the multi-year insider trading operation, Grum and Castelli regularly received from Lazorchak, via Cupo, material, non-public information about Celgene’s anticipated corporate acquisitions, numerous quarterly earnings results, and regulatory news, with the understanding that Grum and Castelli would trade based on the inside information and share their profits with Lazorchak and Cupo. Grum and Castelli also received inside information directly from Cupo regarding a corporate acquisition planned by Cupo’s employer, Sanofi, as well as inside information Cupo had obtained from Lazorchak regarding a Stryker acquisition. Lazorchak, in turn, had obtained the Stryker inside information from his friend, Foldy.
Grum and Castelli made efforts to conceal their involvement in insider trading by, for example, compiling binders of market research to try to provide an independent basis for their knowledge of confidential, material non-public information.
The material, non-public information available to Grum and Castelli enabled them to reap substantial profits by engaging in lucrative securities trading ahead of the public announcement of several corporate acquisitions, numerous quarterly earnings results, and regulatory news. In addition, they shared a portion of their profits with Lazorchak and Cupo for their respective roles in providing Grum and Castelli inside information.
In addition to the prison terms, Judge Hayden sentenced Grum and Castelli to two years each of supervised release.
Grum and Castelli are the last of the six defendants charged with participating in this insider trading network to plead guilty. The other four defendants—Lazorchak, Cupo, Foldy, and Michael Pendolino, 44, of Nashua, New Hampshire—entered their guilty pleas before Judge Hayden on October 7, 2013, and are awaiting sentencing.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Aaron T. Ford in Newark, for the investigation leading to today’s guilty pleas. He also thanked the U.S. Securities and Exchange Commission’s Market Abuse Unit, under the direction of Daniel M. Hawke.
The government is represented by Assistant U.S. Attorney Shirley U. Emehelu of the U.S. Attorney’s Office Economic Crimes Unit in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.

Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Insider Trading Charges Against Former Senior Managing Director of Investment Bank

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced today the unsealing of a criminal complaint charging Frank Perkins Hixon, Jr., a former senior managing director of Evercore Group LLC, a subsidiary of Evercore Partners Inc. (Evercore), with insider trading offenses. Specifically, Hixon is alleged to have used inside information to trade and cause others to trade in the securities of Evercore, Westway Group Inc. (Westway), and Titanium Metals Corporation (Titanium). Hixon is also charged with making false statements to FBI agents. The defendant was arrested on these charges this morning at his apartment in New York, New York, and presented this afternoon in Manhattan federal court.
Manhattan U.S. Attorney Preet Bharara said, “As we have often said, those like Frank Perkins Hixon, Jr. who illegally manipulate the market by allegedly trading on material non-public information exploit law-abiding investors and traders. In this case, the alleged wrongdoing was compounded when Hixon tried to evade detection by lying to investigators and to his company.”
Assistant Director in Charge George Venizelos said, “This is the same old song: another high-ranking finance official allegedly broke the law and abused his position in a thinly veiled attempt to make illegal trades. The alleged use of material information gleaned through confidential meetings at Evercore was deceptive and more importantly illegal. When Hixon was confronted about his back door trades, he allegedly doubled down and lied to the FBI agents who interviewed him. The integrity of our markets remains a paramount concern of the FBI. We’ll continue to pursue these cases until that message is crystal clear.”
According to the allegations contained in the complaint unsealed today in Manhattan federal court:
Between April 2010 and January 2014, Hixon was a senior managing director with the Mining and Metals Group of Evercore Group LLC. Hixon used material non-public information that he acquired as part of his employment with Evercore to trade and cause trades in brokerage accounts belonging to the mother of his young child (Individual A), who lived in Austin, Texas, and to Hixon’s close relative (Individual B), who lived in Johns Creek, Georgia.
In 2011, Hixon led an Evercore team in advising Westway about a non-public offer from another company (Company A) to purchase some of its business components and, more generally, in connection with potential transactions concerning Westway’s other business components. Company A’s offer was made in early September 2011, and a special committee was formed around that time to consider the offer and other strategic alternatives. Those developments were not announced publicly until December 15, 2011. Meanwhile, between October 21 and December 15, 2011, Hixon purchased and caused to be purchased 229,000 shares of Westway for Individual A’s brokerage account by logging into Individual A’s account from various locations, including Evercore’s Manhattan office. As the negotiations for the contemplated Westway transactions became protracted, Hixon sold and caused to be sold about 140,000 of the Westway shares that had accumulated in Individual A’s account for a profit of approximately $260,000.
In October 2012, Hixon was invited, along with other Evercore personnel, to meet with a special committee of Titanium’s board of directors to discuss a potential engagement in connection with an unspecified $3 billion transaction. At the October 23, 2012 pitch meeting, which Hixon attended by teleconference from London, England, Hixon and the rest of the Evercore team learned that the transaction being considered was an acquisition of Titanium by Precision Castparts Corp. (PCP), a manufacturer of complex metal components and products. Hixon also learned the approximate offer price and that the transaction was likely to close before year’s end.
Within approximately one hour of the meeting with the special committee, Hixon began buying 20,000 Titanium shares for Individual A’s account from a mobile device traced back to London, England. Eight days later, 20,000 more shares of Titanium were purchased for Individual A’s account. Most of the logins to the account corresponding with these purchases traced back to Evercore’s Manhattan office. That same day, 15,000 shares were purchased for Individual B’s account. After market close on November 9, 2012, Titanium announced PCP’s tender offer for its shares. The next trading day, November 12, 2012, all 40,000 of Individual A’s shares of Titanium were sold for a profit of approximately $180,000. Later that month, Individual B’s Titanium shares were sold for a profit of approximately $72,350.
On January 14, 2013, Hixon attended an Evercore partnership meeting at which he learned that Evercore would be announcing record financial results for the fourth quarter of 2012. After the partnership meeting that day, Hixon spoke to Individual B by phone. During the two days preceding the bank’s January 30, 2013 announcement, Hixon, logging into Individual A’s account from Evercore’s Manhattan offices and from his home in Manhattan, bought 27,000 shares of Evercore for the account. Meanwhile, the day before the announcement, 10,000 shares of Evercore were purchased for Individual B’s account. After Evercore’s earnings release, Individual A and Individual B sold all the Evercore shares the next day and reaped a combined profit of approximately $94,700.
In February 2013, Evercore asked Hixon to respond to a request from the Financial Industry Regulatory Authority (FINRA) and to identify any known names from a list of people and entities who had traded in Titanium stock prior to PCP’s tender offer. Although Individual A and B were both on the FINRA list, Hixon responded by e-mail, “No known relationships.”
When Evercore confronted Hixon about his failure to identify Individual A—who, as noted above, is the mother of his young child—Hixon claimed not to know Individual A by her legal name, which was what appeared on the FINRA list, and to know her only by a different name she uses. Documents produced by Evercore, including text messages and e-mails between Hixon and Individual A, make clear that Hixon had, in fact, long been aware of Individual A’s legal name. Bank records show that he wrote numerous large checks to Individual A, in her legal name, from 2009 to 2010. On January 28, 2014, Hixon met with two FBI agents and told them, among other things, that he had never traded in or even accessed Individual A’s brokerage account.

When Evercore confronted Hixon about his failure to identify Individual B, his close relative, Hixon responded that the associated location given for Individual B on the FINRA list—Duluth, Georgia—was inaccurate, because Individual B lives in Johns Creek, Georgia. Johns Creek shares a zip code with portions of Duluth and was only incorporated as its own city in December 2006. The city reflected on the brokerage account statements for Individual B’s account is Duluth.

Hixon, 55, of New York, New York, has been charged in the complaint with five counts of securities fraud (counts one through three, five, and six), two counts of securities fraud in connection with a tender offer (counts four and seven), and one count of making a false statement (count eight). The securities fraud and fraud in connection with a tender offer charges each carry a maximum term of 20 years in prison, and the false statement charge carries a maximum term of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the FBI and thanked the Securities and Exchange Commission, which has filed civil charges in a separate action. Mr. Bharara also thanked Evercore for its cooperation in this matter.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Sarah E. McCallum is in charge of the prosecution.
The charges contained in the complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

U.S. Indicts Corporate Audit Director on Securities Fraud Charges for Allegedly Profiting $286,000 from Insider Trading

CHICAGO—A certified public accountant who was involved in the auditing process at a publicly traded company based in Chicago was indicted on federal fraud charges for allegedly engaging in insider trading of the company’s securities that made him an illegal profit of more than $286,000 in 2012. The defendant, Steven M. Dombrowski, who was the director of corporate audit for Allscripts Healthcare Solutions Inc., was charged with 16 counts of securities fraud in an indictment that was returned by a federal grand jury yesterday and announced today.
At the same time, the U.S. Securities and Exchange Commission announced that it filed a civil enforcement action involving the insider trading allegations against Dombrowski yesterday in U.S. District Court in Chicago.
Dombrowski, 49, of Chicago, will be arraigned on the criminal charges on a date yet to be determined in Federal Court.
According to the indictment, Dombrowski misused material, non-public information he knew about Allscripts’ performance for the first quarter of 2012 and purchased put options and engaged in short sales of stock through a trading account in his wife’s maiden name that he controlled, which resulted in illegal profits of approximately $286,211. The indictment seeks forfeiture of that amount from Dombrowski.
Dombrowski and the employees he supervised were responsible for auditing and testing the processes and procedures Allscripts used to compute and report its financial performance. Allscripts provides information technology solutions to the health care industry, and its common stock is traded on the NASDAQ stock market under the symbol MDRX.
Between April 10 and April 28, 2012, a quarterly blackout period was in effect at Allscripts. The blackout prohibited certain employees, including Dombrowski, who were given written notice and who had access to material, non-public information, from engaging in insider trading 15 days before the end of a quarter and ending after the second full business day following the company’s quarterly earnings announcement.
Dombrowski allegedly learned in April 2012 through his employment that Allscripts’ first quarter financial results were going to be less favorable than market expectations when they were publicly announced on April 26, 2012. Throughout April, Dombrowski conducted securities transactions that he designed to be profitable if the price of Allscripts stock declined, including purchasing put options and short selling stock, which he knew was prohibited, the indictment alleges. Allscripts’ stock, in fact, declined when its 2012 first quarter announcement revealed lower sales, less revenue, and lower earnings per share than the first quarter of 2011.
After Allscripts stock declined on and after April 26, 2012, Dombrowski allegedly offset his Allscripts securities positions and profited approximately $286,211 from insider trading, the charges allege.
The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation. The SEC cooperated in the investigation.
The government is being represented by Assistant U.S. Attorneys Clifford C. Histed and Paul H. Tzur.
Each count of securities fraud carries a maximum penalty of 20 years in prison and a $5 million fine, and restitution is mandatory. If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.
The public is reminded that an indictment is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Manhattan U.S. Attorney and FBI Announce Insider Trading Charges Against Former Financial Adviser and Director of Investment Company

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced today the unsealing of a criminal complaint in Manhattan federal court charging Waldyr Prado, a former financial adviser at a large U.S. brokerage firm, and Igor Cornelsen, a director of a British Virgin Islands Investment Company that he owns and operates, with using inside information to trade on Burger King securities in advance of Burger King’s September 2010 acquisition by 3G Capital Partners (3G), a New York and Brazil based private equity firm. Prado and Cornelsen are nationals and residents of Brazil, and they have not yet been arrested on these charges.
Manhattan U.S. Attorney Preet Bharara said, “As alleged, when Waldyr Prado and Igor Cornelsen traded around a ‘sandwich deal,’ the defendants knew they were committing insider trading. They were illegally profiting from material non-public information to which they were not entitled.”
Assistant Director in Charge George Venizelos said, “Trading on inside information negatively impacts individual investors, puts companies at risk and threatens the public’s faith in our financial markets. As alleged, Mr. Prado and Mr. Cornelsen put their faith in a ‘sandwich deal’ and bit off more than they could chew. The FBI will continue to investigate this type of illegal conduct and prosecute those who violate our laws.”
According to the complaint unsealed today in Manhattan federal court:
In about February 2010, 3G initiated discussions with Burger King about a potential acquisition. As part of these discussions, Burger King and 3G executed a confidentiality agreement in April 2010, pursuant to which all aspects of their negotiations and due diligence were non-public.
In about early March 2010, a principal of 3G (3G Principal-1) contacted an investor of the firm (Client-1) and advised that 3G was in negotiations to acquire Burger King. Client-1, who was also a brokerage client of Prado’s, signed a confidentiality agreement with 3G relating to the potential Burger King acquisition. This agreement permitted Client-1 to share information concerning the potential acquisition with Client-1’s financial adviser, i.e. Prado, in order to facilitate Client-1’s decision to invest in the specific 3G fund that would acquire Burger King (the 3G Fund).
From about March 2010 through the September 2, 2010 announcement that 3G would purchase Burger King for $4 billion in stock and the assumption of debt (the September 2 announcement), Client-1 received periodic updates about the general progress of the deal from 3G’s principals. During this period, Client-1 evaluated whether to liquidate personal holdings for a $50 million commitment to the 3G Fund or to obtain separate financing. Client-1 discussed this issue with Prado and, in so doing, confided that the financing was for a commitment to a 3G fund seeking to acquire Burger King. Based on their professional relationship, Client-1 believed that Prado would maintain the confidentiality of this information. Over the next several months, Client-1 and Client-1’s assistant spoke with Prado about the progress of the Burger King transaction.
Notwithstanding the duties of trust and confidence owed to his brokerage firm employer and Client-1, Prado misappropriated information learned from Client-1 for his own benefit and to purchase Burger King stock and options. For example, on May 17, 2010, after Prado met with Client-1 in Brazil and learned of the potential 3G-Burger King acquisition, Prado sent an e-mail to an acquaintance in the financial industry (Witness-1) stating that Prado was “in Brazil with information that cannot be sent by e-mail. You can’t miss it.” After sending this e-mail, Prado and Witness-1 spoke by telephone, and Prado told Witness-1 that 3G was going to acquire Burger King. From May 17, 2010 through September 1, 2010, Prado purchased Burger King stock and call options. On September 2, 2010, following the announcement of 3G’s acquisition, Prado sold his Burger King holdings for a total profit of over approximately $175,000.
On May 17, 2010, and minutes after Prado sent the e-mail to Witness-1 referenced above, Prado sent a similar e-mail to Cornelsen. The e-mail stated that Prado had “some info that I cannot say over the phone....You have to hear this.” Within minutes, and after the market closed, Cornelsen called Prado. The next day, Cornelsen began trading out-of-the-money Burger King call options. From May 18, 2010 through late August 2010, Cornelsen purchased short-expiration call options and had frequent contact with Prado. For example, on August 18, 2010, Cornelsen sent Prado an e-mail asking if “the sandwich deal going to happen,” to which Prado replied, “it’s going to happen.” On the same day, Cornelsen sent Prado another e-mail asking again whether the “sandwich deal” was going to happen, and Prado responded that it was a “sure thing.” After the September 2 announcement, Cornelsen sold his options for a total profit of approximately $1.68 million and a net profit (including expired July 2010 options) of approximately $1.4 million.
In July 2012, in connection with an insider trading investigation, the Securities and Exchange Commission (SEC) deposed Prado. In his deposition, Prado denied any advance knowledge of the Burger King acquisition. Approximately one month after his deposition, Prado fled to Brazil, from where he told his U.S.-based supervisor that he would not be returning to the United States because he believed that he was going to be charged with perjury and because Brazil did not have “an extradition policy.”

* * *

Prado, 43, of Porto Seguro, Brazil, and Cornelsen, 65, of São Paolo, Brazil, have been charged in the vomplaint with conspiracy to commit securities fraud and fraud in connection with a tender offer (count one), securities fraud (count two), and fraud in connection with a tender offer (count three). The securities fraud and fraud in connection with a tender offer charges each carry a maximum term of 20 years in prison, and the conspiracy charge carries a maximum term of five years in prison.
Mr. Bharara praised the investigative work of the FBI and also thanked the Securities and Exchange Commission, which has brought civil actions against the defendants.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys David I. Miller and Jason Cowley are in charge of the prosecution.

SAC Capital Portfolio Manager Michael Steinberg Found Guilty in Manhattan Federal Court of Insider Trading Charges

Preet Bharara, the United States Attorney for the Southern District of New York, announced that Michael Steinberg, a portfolio manager of Sigma Capital Management LLC (Sigma), a division of the Connecticut-based hedge fund SAC Capital, was found guilty today in Manhattan federal court based on his participation in an insider trading scheme. Steinberg was convicted after a five-week jury trial presided over by U.S. District Judge Richard J. Sullivan.
Manhattan U.S. Attorney Preet Bharara said, “The jury has found what the government contended from the outset; in search of an edge, Michael Steinberg crossed the line into criminal insider trading. Like many other traders before him who, blinded by profits, lost their sense of right and wrong, Steinberg now stands convicted of federal crimes and faces the prospect of losing his liberty.”
According to the superseding indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:
Steinberg traded in the securities of two publicly traded technology companies, Dell Inc. (Dell) and NVIDIA Corporation (NVIDIA), based on inside information that his research analyst Jon Horvath obtained from a circle of analyst friends at different investment firms. Horvath previously pled guilty to insider trading, as did analysts Jesse Tortora, formerly of Diamondback Capital; Spyridon “Sam” Adondakis, formerly of Level Global; Danny Kuo, formerly of Whittier Trust; and Sandeep Goyal, formerly of Neuberger Berman. Steinberg’s trading in Dell and NVIDIA resulted in approximately $1.9 million in illegal profits for his hedge fund.
In particular, Tortora provided Horvath and others with inside information related to Dell’s quarterly earnings (the Dell inside information), which Tortora obtained from Goyal who, in turn, had obtained the information from an employee at Dell (the Dell insider). For Dell’s quarter that was announced by Dell on August 28, 2008 (the Dell announcement), the Dell inside information indicated that Dell would report gross margins that were materially lower than market expectations. In advance of the Dell announcement, Horvath reported this negative inside information to Steinberg.
On August 18, 2008, after a series of calls from the Dell insider to Goyal and from Goyal to Tortora and Horvath, Horvath then called Steinberg. Within a minute of the telephone call between Steinberg and Horvath, Steinberg’s portfolio began shorting shares of Dell. One minute later, Horvath wrote an e-mail to Steinberg stating: “Pls keep the DELL stuff especially on the down low...just mentioning that because JT [Jesse Tortora] asked me specifically to be extra sensitive with the info.” By the end of the day on August 18, 2008, Steinberg had accumulated a net short position of over 167,000 shares of Dell. On August 26, 2008, Horvath confirmed in an e-mail to Steinberg and another portfolio manager at Sigma that Horvath’s Dell information had been based on a “2nd hand read from someone at the company.” Steinberg responded: “Yes normally we would never divulge data like this, so please be discreet.” And on August 27, 2008, Steinberg sent an e-mail to Horvath with the subject line, “Dell action,” in which he asked, “Have u double checked [with] JT this week?” Horvath responded, “Yes he [Tortora] checked in [a] couple days ago, same read no change.” The following day, Steinberg executed additional short trades based on the Dell inside information.
On August 28, 2008, before Dell’s announcement, Steinberg executed or caused to be executed additional short trades. Steinberg also executed or caused to be executed options trades in Dell in advance of the Dell announcement.
After the close of the market on August 28, 2008, Dell publicly announced gross margins that were substantially below market expectations. At the end of the next trading day following Dell’s announcement, its stock price dropped by nearly 14 percent. Shortly thereafter, Steinberg covered his short position and closed out his position in Dell option contracts, resulting in an illegal profit for Sigma of approximately $1 million.
In addition, in 2009, Kuo obtained inside information regarding NVIDIA’s financial results (the NVIDIA inside information) in advance of NVIDIA’s quarterly earnings announcements. The NVIDIA inside information indicated, among other things, that NVIDIA’s gross margins would be lower than market expectations. Kuo obtained the NVIDIA inside information from a friend, Hyung Lim, who received it from an employee at NVIDIA (the NVIDIA insider). In advance of NVIDIA’s May 7, 2009 quarterly earnings announcement (the NVIDIA announcement), Kuo provided the NVIDIA inside information, which he had obtained from Lim, to Tortora, Horvath, and others. Horvath, in turn, provided the NVIDIA inside information to Steinberg, who executed or caused to be executed transactions in NVIDIA in advance of the NVIDIA announcement.
On May 7, 2009, NVIDIA publicly announced gross margins that were substantially lower than the market expected. At the end of the trading day following the NVIDIA announcement, NVIDIA’s stock price dropped by more than 13 percent. Shortly thereafter, Steinberg caused Sigma to liquidate its position in NVIDIA, resulting in an illegal profit for Sigma of over $400,000.
Steinberg, 41, of New York, New York, was found guilty of conspiracy to commit securities fraud and four counts of securities fraud. The conspiracy count carries a maximum sentence of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offense.
Steinberg is scheduled to be sentenced by Judge Sullivan on April 25, 2014.
Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Antonia M. Apps and Harry A. Chernoff are in charge of the prosecution.

Three Sentenced on Conspiracy, Insider Trading, and Tax Evasion Charges

ATLANTA—Douglas Ballard, Guy Mitchell, and Joseph Todd Foster have been sentenced for their roles in a conspiracy to commit bribery and bank fraud, insider trading, and tax evasion that occurred at the now-failed Integrity Bank.
“Our nation’s financial crisis was fueled in part by bank insiders and major borrowers whose greed led them to break the law,” said United States Attorney Sally Quillian Yates. “The conduct of these defendants, two of whom once held prominent positions in banking, helped pave a path to the shocking number of bank failures Georgia has experienced in the last 10 years.”
Mark F. Giuliano, Special Agent in Charge, FBI Atlanta Field Office, stated, “The magnitude and impact of this financial institution based fraud case clearly illustrates why these types of criminal investigations are a priority matter at the FBI. We will continue to work with our various investigative partners to identify, investigate, and present for prosecution those individuals who betray their positions of trust within these institutions for the sake of personal greed.”
“The sentence today does not replace the losses that were incurred due to this scheme,” stated Veronica F. Hyman-Pillot, Special Agent in Charge with IRS-Criminal Investigation. “However, today’s sentence is a message to others that regardless of who you are, there are consequences for committing these types of crimes.”
“The FDIC OIG is pleased to join the U.S. Attorney’s Office and our law enforcement colleagues in announcing the sentencing of individuals whose criminal actions caused serious harm to Integrity Bank,” said Fred W. Gibson, Jr., Acting Inspector General, Federal Deposit Insurance Corporation. “It is particularly troubling to the FDIC OIG when a bank insider like Mr. Ballard, who is entrusted with operating the bank in a safe and sound manner, violates that trust and engages in activities that contribute to losses to the Deposit Insurance Fund. Mr. Mitchell’s sentencing should deter others who face similar opportunities to conspire with bank insiders in such criminal behavior. Today’s sentencing confirms that those who undermine the integrity of the financial system will be brought to justice and held accountable for their crimes.”
According to United States Attorney Yates, the charges, and other information presented in court: Ballard, a former executive vice president at the now-failed Integrity Bank, formerly headquartered in Alpharetta, Georgia, received more than $200,000 in cash bribes from Mitchell, the bank’s largest borrower. At the same time in 2006, when Ballard was being bribed, he allowed Mitchell to draw more than $7 million from a loan that was supposed to be used for renovation and construction at the Casa Madrona Hotel in Sausalito, California, despite the fact that no renovation or construction work was done. Instead, Mitchell used the money to buy an island in the Bahamas, travel by private jet, purchase Miami Heat basketball tickets, buy fancy jewelry and expensive cars, and purchase a mansion in Coconut Grove, Florida.
Mitchell received $20 million in additional business loans from Integrity Bank after the Casa Madrona loan proceeds were exhausted, and he continued to use some of that money for impermissible, personal expenses. Mitchell defaulted on the loans, and Integrity Bank eventually failed.
Foster was Integrity Bank’s vice president in charge of Risk Management. He sold nearly all his Integrity stock in August 2006 based on materially adverse information about the company that was not available to the public. Specifically, Foster knew that the bank was in an increasingly precarious position because of Mitchell’s financial difficulties and pending default.
Ballard, Mitchell, and Foster were sentenced by United States District Judge Julie Carnes.
Douglas Ballard, 44, was sentenced to serve two years and six months in federal prison, to be followed by three years of supervised release. He was ordered to pay restitution in the amount of $1,000,000 and a special assessment of $200. Ballard pled guilty to conspiracy to commit bank fraud and bribery and to income tax evasion on July 6, 2010.
Guy Mitchell, 54, of Miami, Florida, was sentenced to five years in prison, to be followed by three years of supervised release. He was ordered to pay restitution in the amount of $5,661,650, a fine of $250,000, and a special assessment of $100. Mitchell pled guilty to conspiring to commit bank fraud and bribery on July 1, 2013.
Joseph Todd Foster, 46, of Blakely, Georgia, was sentenced to three years of probation, and 120 hours of community service. He was also ordered to pay a $100 special assessment. Foster pled guilty to securities fraud on July 6, 2010.
This case was investigated by special agents of the Federal Bureau of Investigation, the Federal Deposit Insurance Corporation Office of Inspector General, and the Internal Revenue Service.
Assistant United States Attorneys Douglas W. Gilfillan and Christopher C. Bly prosecuted the case.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

For further information please contact the U.S. Attorney’s Public Affairs Office at USAGAN.PressEmails@usdoj.gov or (404) 581-6016. The Internet address for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.