Diamondback Receives $6M Refund from U.S. Prosecutors as Newman Impact Continues

Jun 3 2016 | 10:35pm ET

The unwinding of a major U.S. effort against insider trading continued on Friday as the office of U.S. Attorney Preet Bharara agreed to refund $6 million paid by shuttered hedge fund Diamondback Capital Management as part of a 2012 non-prosecution deal.

The agreement, revealed in documents filed Friday in Manhattan federal court, was the latest consequence of the landmark Newman ruling, a December 2014 decision in the Second Circuit that significantly raised the bar in seeking insider trading convictions. 

In the Newman case, the court ruled that prosecutors must prove a trader knew the source of an inside tip would receive some kind of benefit in exchange, as well as greatly narrowing the definition of what actually constitutes such a benefit.

The ruling reversed the convictions of former Diamondback executive Todd Newman and Level Global co-founder Anthony Chaisson, and has thrown a large number of post-crisis insider trading cases into limbo or resulted in their dismissal. The conviction of former SAC Capital portfolio manager Michael Steinberg, for instance, was tossed entirely, leading indirectly to a settlement with SAC Capital founder Steven Cohen earlier this year.  

The deal follows a $3 million refund paid in February to Diamondback by the U.S. SEC.

Diamondback, which at one point managed north of $5 billion, was closed in December 2012 after the FBI raided its Stamford, CT offices in November 2010. 

Chaisson’s $4 billion Level Global, raided by the FBI the same year, closed in February 2011. It received a $21.5 million refund from the SEC in January, and co-founder David Ganek’s lawsuit against Bharara was allowed to proceed in March. Ganek, who was never charged with any wrongdoing, alleges the raid violated his civil rights and some evidence on which it was based was fabricated. 

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