Danielle Chiesi is alleged to have earned more than $4m from trading on insider information
Danielle Chiesi, the analyst who compared insider dealing to an orgasm, pleaded guilty in the latest chapter of the biggest case of fraudulent trading in decades.
Chiesi, a former consultant for Bear Stearns' New Castle Funds, was arrested by the US authorities in October 2009. She is accused of earning more than $4m (�2.5m) by trading on insider information. The analyst was arrested alongside Raj Rajaratnam, co-founder of the Galleon Group hedge fund, who faces trial next month. He denies wrongdoing.
The former beauty queen was due to stand trial in April. She is the 16th person to plead guilty in the case and could potentially act as a witness against Rajaratnam. Her plea, today in federal court in New York follows a controversial decision to allow prosecutors to use secretly recorded telephone conversations between Rajaratnam and Chiesi at trial.
Chiesi and Rajaratnam are charged with illegally using tips from company executives, hedge fund officials and other insiders to earn $60m in illegal profits. US prosecutors allege the pair profited from insider information from companies including Google and chip maker Advanced Micro Devices.
Among others Chiesi is alleged to have received insider information from Robert Moffat, a former senior executive at IBM, with whom she was reportedly having an affair. Moffat was jailed for six months last year for passing on classified information. Prosecutors allege that Moffat was just one of a stable of well placed sources within tech companies whom Chiesi milked for inside information. According to an article in Fortune magazine, she told colleagues: "I love the three Ss: sex, stocks, and sports", and compared trading inside information to an orgasm. Legal experts said she faced a maximum of 25 years in jail had the case gone to trial.
Prosecutors allege Chiesi, Rajaratnam and others repeatedly traded on material information given as tips by insiders and others at hedge funds, public companies, and investor relations firms. Peter Henning, professor of law at Wayne State University, said Chiesi's guilty plea would pile the pressure on Rajaratnam. He added that the defence would probably question Chiesi's credibility as she has previously declared her innocence. "But it's not helpful for Rajaratnam. The issue now is whether he will plead or not," said Henning.
The Galleon Group investigation has expanded since the original arrests and become one of the largest insider dealing investigations of all time. The justice department is believed to have subpoenaed 50 hedge funds, technology companies and so-called "expert network" consultancies across the country.
Rajaratnam's trial looks set to be the most high-profile insider dealing case since the 1980s. Henning said the justice department and the US financial regulator, the Securities and Exchange Commission, were "keen to show this is the post-Bush era and they are policing Wall Street."
Henning said the sums involved were tiny compared with other recent Wall Street scandals. "Insider trading is easier to prosecute than proving who was responsible for the financial meltdown," he said.
Source: http://www.guardian.co.uk/business/2011/jan/19/danielle-chiesi-insider-trading-galleon
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