Tags: jefferies | insider | trading

Ex-Jefferies Money Manager Gets 6 Years in Insider Scheme

Sunday, 19 Dec 2010 04:25 PM

Joseph Contorinis, the former Jefferies Paragon Fund money manager convicted in an insider-trading scheme that prosecutors said netted more than $7 million in illegal profits, was sentenced to six years in prison.

“This is a crime that does damage to the national economy,” U.S. District Judge Richard Sullivan in New York said as he sentenced Contorinis. “It’s very important to send a message through the sentence imposed on you.”

“You will become a poster child for what happens,” Sullivan added. He also ordered Contorinis to forfeit as much as $13 million.

Contorinis was convicted by a federal jury in Manhattan in October of securities fraud and conspiracy. Jurors found that he illegally traded on inside merger tips supplied by Nicos Stephanou, an investment banker who was the government’s chief witness in the trial.

Prosecutors asked Sullivan to send Contorinis to prison for about 8 years to 10 years, as recommended by U.S. sentencing guidelines. Lawyers for Contorinis, who is in custody, asked for a “significantly” lesser sentence, saying the money manager’s profit from the trades was less than $1 million.

“His life has been ruined,” Roberto Finzi, a lawyer for Contorinis, told Sullivan. “His relationship with his family has been ruined. His reputation has been ruined.”

Finzi argued that a sentence of 8 years to 10 years was extreme and said the judge shouldn’t punish Contorinis “for all the others who aren’t caught.” Finzi distinguished insider trading from a Madoff-like Ponzi scheme that costs investors their life savings and said that virtually all of the many thousands of stock trades Contorinis made in his career were untainted.

Prosecutors said Contorinis had lied at the trial when he testified that he relied on an analyst report for his trades.

“A message needs to be sent to traders and hedge funds, that you can’t point to analyst reports and paper the file” with documents suggesting the trades were lawful, Assistant U.S. Attorney Andrew Fish said. “People need to understand that when you get caught, they’re going to get punished severely.”

Stephanou, who was an associate director of mergers and acquisitions at Zurich-based UBS AG, passed along tips to Contorinis from 2004 to 2006, according to testimony at the trial. He was on the UBS team advising Cerberus Capital Management LP, part of the group trying to buy Albertsons Inc. in 2006.

Stephanou pleaded guilty in the case and testified against Contorinis in exchange for leniency. He testified that he told Contorinis and other friends about pending deals, including the acquisition of Albertsons, which was then the second-biggest U.S. grocer.

At the time, Contorinis’s hedge fund held more than $70 million in Albertsons stock, prosecutors said.

Separately, Sullivan is presiding over a pending insider- trading case against former Galleon Group LLC trader Zvi Goffer and other traders.

While there was no reference to the Galleon case, Sullivan said the public “can get very cynical when they realize that people who manage hedge funds engage in insider trading.”

The case is U.S. v. Contorinis, 09-cr-01083, U.S. District Court, Southern District of New York (Manhattan).

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