New York, NY – Last week, Anthony Scolaro, a former portfolio manager with Stamford, Connecticut-based hedge fund, Diamondback Capital Management, settled his insider-trading case with the U.S. Securities and Exchange Commission. Diamondback, also agreed to disgorge the profits from the illicit trades.
Details of the Allegations
According to the SEC complaint, late in 2007 Scolaro traded on inside information about a pending acquisition of Axcan Pharma Inc. that had originated at the New York office of law firm Ropes & Gray LLP. Axcan announced its acquisition by TPG Capital on November 29, 2007. Scolaro was accused of generating $1.1 million in profit on this trade for Diamondback.
These allegations were related to a criminal case in which Scolaro pleaded guilty to insider-trading charges stemming from the Galleon Group LLC investigation. Scolaro has yet to be sentenced in the criminal case.
To settle this SEC insider-trading case, Scolaro agreed to pay $140,400 in principal and interest, in addition to a civil penalty of $62,945. In addition, Scolaro consented to an SEC order barring him from working for any investment adviser, broker-dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
Diamondback Capital Management was also named as a defendant in the SEC’s case. Although the firm was not charged with misconduct, Diamondback agreed to pay $962,486 in gains resulting from Mr. Scolaro’s trades of securities, plus interest of $110,246.
Not Done with Diamondback
Despite settling this SEC charge, the investigation of Diamondback employees may still be ongoing. According to the New York Post, “people close to Diamondback, which managed up to $5.5 billion in the wake of the raids, say the feds were focused on the firm’s technology trades.” Scolaro focused on the healthcare sector.
This is consistent with the fact that shortly after federal authorities raided Diamondback’s Stamford, Connecticut offices last November, the firm suspended technology oriented portfolio manager Todd Newman. According to the Post, federal authorities were interested in the investment activity of Newman and one of his subordinates. However, at this point neither Newman nor his un-named subordinate, have been charged with wrongdoing.