Ex-Diamondback portfolio manager gets 4½ years for insider trading

Todd Newman, a former portfolio manager at hedge fund specialist Diamondback Capital Management, was sentenced to 4 years in prison for his role in an insider-trading scheme that the U.S. said reaped $72 million.

U.S. District Judge Richard Sullivan handed down the sentence Thursday in Manhattan federal court and also imposed a $4 million fine. He recommended that Mr. Newman be sent to the federal prison camp in Devens, Mass., where Galleon Group co-founder Raj Rajaratnam is serving an 11-year sentence for insider trading.

“People should understand the lines are so bright here that the penalties have to be severe enough to send a message,” Mr. Sullivan said. “People should know when you do that, the penalty will be harsh.”

Mr. Newman was convicted in December along with Level Global Investors co-founder Anthony Chiasson. Prosecutors said they were part of a group of portfolio managers, fund analysts and insiders at technology companies who swapped and shared material non-public information about the firms and then traded on them.

Mr. Newman was convicted of four counts of securities fraud and one count of conspiracy related to trades on inside information that prosecutors said earned his fund more than $4 million from his insider trading. The jury found Mr. Newman engaged in a two-year scheme to trade on Dell Inc. and Nvidia Corp. using illicit tips provided by his then-analyst, Jesse Tortora.

Six others charged with being part of the insider-trading ring have pleaded guilty and are cooperating with the U.S., including Jon Horvath, a former analyst at S.A.C. Capital Advisors' Sigma unit. In March, Michael Steinberg, a portfolio manager who Mr. Horvath reported to, was indicted by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.