By Emily Flitter and Dan Levine
REUTERS - A securities analyst accused of leaking secret information in 2009 about a potential partnership between Yahoo
Sandeep Aggarwal, who worked as an analyst covering technology stocks before moving to India to start his own internet company, was arrested on Monday by FBI agents in San Jose while visiting the United States. He made his initial appearance in San Francisco federal court on Tuesday, charged with conspiracy to commit securities fraud and wire fraud related to insider trading.
Aggarwal, 40, did not enter a plea to allegations that he passed non-public information to about a dozen hedge fund managers including SAC portfolio manager, Richard Lee, who pleaded guilty last week days before the hedge fund itself was indicted on Thursday in New York.
SAC spokesman Jonathan Gasthalter's declined to comment on Tuesday.
The hedge fund and its founder Steven Cohen, one of Wall Street's most successful investors, have been investigated by the FBI and market regulators for about a decade in a crackdown on insider trading.
Aggarwal, wearing jeans and a dark blue short-sleeved polo shirt in court, was ordered released on a $500,000 bond by magistrate judge Nandoor Vadas and told to appear Friday in federal court in New York, where prosecutors have won about 60 insider trading convictions in the past five years.
One of the conditions of Aggarwal's release was that he would have no contact with SAC Capital or with Lee, the former SAC employee he is accused of tipping. Aggarwal is a citizen of India with permanent U.S. residency status.
His lawyer Sanaz Nikaein told the court that her client was planning to cooperate with the FBI after agents first approached him in February and that his arrest had come as "a surprise to his attorney, to his wife and to himself."
Aggarwal's lawyer in New York, Sam Braverman, said he was reviewing the charges.
"Mr. Aggarwal will gladly come to New York to address the charges directly," Braverman said in an emailed statement.
MICROSOFT AND YAHOO LINK
Aggarwal worked in 2009 as a research analyst covering technology at the firm Collins Stewart in San Francisco. He was quoted frequently by the press and even commented publicly on the possibility of a partnership between the internet company, Yahoo, and the computer company, Microsoft. He left Collins Stewart in March 2010.
Aggarwal is accused of tipping Lee and other hedge fund employees about private negotiations between the two companies for the partnership.
Collins Stewart was acquired by Canaccord Genuity in March 2012. A spokesman for Canaccord, Scott Davidson, said "we have cooperated fully with the investigation."
A statement by Microsoft on Tuesday said the company had "zero tolerance for insider trading, and we assisted the government with this investigation."
The criminal complaint against Aggarwal said he told "approximately 14 traders or portfolio managers at various hedge funds" details about the potential partnership.
According to the criminal complaint, Aggarwal told Lee his "best industry contact" who was a "senior guy at Microsoft" said the two companies had resumed their talks, and that senior executives from Yahoo were visiting Microsoft's headquarters, elevating the seriousness of the negotiations.
The former Microsoft employee, who is not identified in the complaint but is described as a long-time friend of Aggarwal's, is cooperating with the government.
The complaint said Aggarwal also gave the information to a trader at another hedge fund, which was not identified in the court document. A representative of the hedge fund later contacted Aggarwal's employer and reported the suspicion that Aggarwal was disseminating non-public information.
He also faces a civil suit by the U.S. Securities and Exchange Commission.
The $14 billion SAC Capital has also been charged with securities fraud and wire fraud. The indictment said the firm fostered a corrupt business culture in which portfolio managers were encouraged to use any means possible to find an "edge" in stock trading.
The criminal charges, along with an administrative proceeding accusing SAC founder Cohen of failing to properly supervise his employees, are connected to 10 former SAC employees have been charged or implicated for insider trading.
"Like many others before him, Sandeep Aggarwal allegedly broke the law and provided material non-public information on a Microsoft-Yahoo deal," said FBI Assistant Director-in-Charge George Venizelos. "When questioned by his employer about the source of the information, he lied."
(Reporting by Emily Flitter and Jonathan Stempel in New York and Dan Levine in San Francisco; Additional reporting by Bill Rigby in Seattle; Editing by Leslie Gevirtz and Grant McCool)