Ex-teen Beauty Queen Danielle Chiesi Tagged in Insider Trading

Kimberly Watson, Editor in Chief
October 14, 2011 /

Danielle Chiesi, a former teen beauty queen turned hedge fund trader, has been involved in a longstanding insider trading perpetrated by a billionaire US hedge fund manager after she was caught talking to the fund manager over the telephone.

Raj Rajaratnam, 54, is facing an 11-year imprisonment, a record sentence for an insider trading case, on top of the $10 million fine and $53.8 million in restitution, though he escaped a longer imprisonment due to his illness.

Danielle Chiesi was caught telling Rajaratnam that the internet infrastructure group Akamai is “gonna guide down.”

“I just got a call from my guy. I played him like a finely tuned piano,” she was quoted saying.

She pleaded to the Galleon head to hold off trading so she can initiate the trade, which yielded $5 million in profits for Rajaratnam and $2.4 million Chiesi.

Danielle Chiesi is facing a 30-month imprisonment.

Rajaratnam was quoted as telling her: “I would trade. I mean I would sell 250, buy 250, you know.” Prosecutors say he was guiding her about creating a pattern of trading to disguise that the main driver of her trades was inside information.”

Judge Richard Holwell concluded that Rajaratnam generated more than $50 million in profits from the insider trading.

“His crimes and the scope of his crimes reflect a virus in our business culture that needs to be eradicated,” Holwell said.

The sentence broke the 10-year imprisonment imposed on Zvi Goffer, a former Galleon trader dubbed as “Octopussy”. Goffer was convicted of taking part in a scheme that generated $20 million in profits.

Rajaratnam’s lawyers requested that he, who is suffering from diabetes, be detained at a medical facility at Butner, in North Carolina. This is the same location where the Ponzi scheme creator Bernard Madoff is serving his 150-year imprisonment. The request will be sent to the bureau of prisons, which will ultimately decide.

However, Judge Holwell denied the motion and ordered Rajaratnam to report to prison on November 28.

Rajaratnam’s hedge fund, Galleon Group, profited from the tips he received from business school classmates turned government witnesses, including a Goldman Sachs director, top corporate executives and Danielle Chiesi.

The Securities and Exchange Commission alleged in a March 01, 2011 lawsuit that former Goldman Sachs board member and business consultant Rajat Gupta has been tipping Rajaratnam with several inside information of the hedge funds that are subject of the scheme.

The Wall Street financier’s illegal trading was busted after prosecutors and Federal Bureau of Investigation agents employed wire-tapping to record traders in purported private conversations.

A total of 45 audio recordings and testimony from 18 witnesses were used in court hearing, leaving Rajaratnam’s legal team helpless.

“I heard yesterday from someone who’s on the board of Goldman Sachs that they are gonna lose $2 a share. The Street has them making $2.50,” Rajaratnam was quoted in one conversation, bragging to a Galleon employee in Singapore.

Prosecutors showed phone records and evidence that Gupta called Rajaratnam 23 seconds after learning during a board call that the bank would lose money for the first time as a public company.

When the stock market opened the next day, Rajaratnam began selling more than 120,000 shares, equivalent to his entire stake in Goldman.

But Gupta has denied any wrongdoing.

A coordinated operation led authorities to the lairs of other insider traders and resulted in charges against dozens of traders, portfolio managers and company insiders.

On January 11, the SEC added to the list of fraudsters in Rajaratnam’s hedge funds complex four more names who were tagged in the insider trading, which included Trivium’s hedge fund manager Robert Feinblatt and analyst Jeffrey Yokuty.

 

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