The Work

January 19, 2011 5:11 PM

Galleon Defendant Chiesi Pleads Guilty to Fraud Counts

Posted by Victor Li

Another domino in the Galleon Group insider trading case fell Wednesday as Danielle Chiesi, a former hedge fund consultant, pleaded guilty to three counts of conspiracy to commit securities fraud before Manhattan federal district court judge Richard Holwell.

Chiesi, who worked for New Castle Funds--formerly the equity hedge fund group of Bear Stearns Asset Management, Inc., is to be sentenced on May 13, according to a press release from the New York division of the FBI.

"Today, Danielle Chiesi admitted to exploiting her access to valuable, nonpublic information to reap $1.7 million in illegal gains. By sharing and conspiring to trade on inside information, Chiesi compromised the companies she sold out and distorted the market for their stocks," said U.S. attorney for the Southern District Preet Bharara in a statement. "Today's plea should send yet another strong message that we have zero tolerance for privileged professionals who game the system and who think the rules apply only to everyone else."

Chiesi, represented by Alan Kaufman of Kelley Drye & Warren, is the sixteenth of 24 individuals charged in connection with the Galleon investigation, which federal prosecutors have described as the largest probe ever of hedge fund–related insider trading. The case is also notable for being the first in which wiretaps were used to investigate insider trading on Wall Street, according to the New York Division of the Department of Justice.

Claiming that authorities violated their constitutional rights in obtaining it, Chiesi and Galleon founder Raj Rajaratnam previously argued that the wiretap evidence should be suppressed. Holwell ruled otherwise last November.

"Dani’s guilty plea acknowledges that on certain occasions in late 2008 and early 2009 she obtained what she believed to be material nonpublic information from corporate executives," Kaufman said in a statement. "She passed this information on to her boss at New Castle who authorized trades for the hedge fund. She did not trade for her own account. This conduct, which she deeply regrets, was in no way indicative of her 20-year career in the financial services industry."

According to Reuters, Kaufman stated outside the courtroom  that his client--who had cried as she entered her plea and faces between 37 and 46 months in prison--has not agreed to cooperate against the remaining defendants, and that prosecutors had not asked her to.

Chiesi's plea caps a busy week for Galleon prosecutors, who got former Ropes & Gray associate Arthur Cutillo to plead guilty to insider trading and conspiracy charges last Friday. The case will be back in the spotlight next month when Rajaratnam, once listed as the 236th wealthiest American, is scheduled to go to trial.

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