By: Paul Coste
“No matter how evasive insider traders’ conduct, or the lengths gone to hide their offenses, this Office will track down and prosecute those who attempt to cheat the system.” – Damian Williams, the US Attorney for the Southern District of New York, stated on Thursday, September 28, 2023, as federal prosecutors announced charges against Anthony Viggiano and co-conspirator, Stephen Forlano, Jr. for securities fraud and conspiracy. Prosecutors also announced the unsealing of a guilty plea of Christopher Salamone, who had pleaded guilty to three counts of securities fraud and one count of conspiracy and is cooperating with the probe. Viggiano faces nine securities fraud and conspiracy charges, while Forlano faces four. All three men are also facing related civil charges from the SEC.
The charges allege former Goldman Sachs Group Inc. and Blackstone Inc. employee Anthony Viggiano, 26, tipped two friends with material nonpublic information (“MNPI”) on more than a dozen deals he learned about during his time at the two Wall Street firms. It is alleged that the group made more than $400,000 on the trades and that inside information was passed around on encrypted messaging apps like Signal as well as Xbox 360 live audio chat.
Viggiano attended college with Forlano and was a childhood friend of Salamone. Viggiano worked at Blackstone for about seven months and at Goldman for more than a year before being terminated. According to the indictment, Viggiano worked in Goldman’s asset and wealth management division and was described by Blackstone as a “junior analyst in a non-investment, finance function”.
The indictment alleges that between 2021 and May 2023, Viggiano received confidential internal communications containing detailed information on nonpublic potential strategic partnerships involving Blackstone and potential acquisition targets involving Goldman and that he provided MNPI relating to the names of the involved publicly traded companies Forlano and Salamone, including American International Group Inc., Harmony Biosciences Holdings Inc., and CDK Global Inc.Forlano and Salamone then each used that information to purchase shares and call options in the companies. It is further alleged that Viggiano would provide Salamone cash for trading and that Salamone agreed to split the profits 50-50 from the illegal trading activity.
It is alleged that Viggiano attempted to cover his tracks and evade detection by asking Forlano and Salamone to download encrypted messaging application Signal, to communicate using the disappearing message feature. Forlano, who is also accused of passing on tips from Viggiano to friends and family, used,among other evasive means of communication, Xbox 360’s liveaudio chat function in order to evade detection by law enforcement.
In one particular instance, it is alleged that Viggiano took additional steps to evade law enforcement. Upon receiving an email on his Goldman email account, which alerted him that the investment bank would be providing preferred equity support for “Advent’s take-private of Maxar Technologies,” Viggiano met with Salamone in person to personally place options trades in Maxar. Viggiano used Salamone’s phone and brokerage accountto do so. It is further alleged that while Viggiano made these trades in Maxar, he indicated to Salamone that he was also purchasing stock in other defense companies besides Maxar as a “smokescreen”. This was done so that in the event someoneasked them about the trades in Maxar, they could say they were buying defense stocks “in anticipation of a possible World War III.”
Beyond this, Viggiano and Salamone are also alleged to have attempted to set up a trading company in Dubai so that they could defer paying taxes on their illegal trading profits.
In or about June 2023, FBI agents interviewed Viggiano and Salomone. After the interviews, unbeknownst to Viggiano, Viggiano was recorded by Salamone making the following statements.
VIGGIANO: You have both the people here who executed trades, fucking, you have all that. What you’re missing is the fucking dots. Right? They have – they have me at Goldman having access to this information, and the over here is … trading that loosely connects to me. It doesn’t take a brain surgeon. So, what – what’s more valuable? If I were to flip, or if Steve [Forlano Jr.] flipped. If Steve flipped, it’s a he-said, she-said bullshit. Because if – it was right now. If I flip, this whole thing’s done, this case is closed, and they’re like, yea.
Salamone: You have shit where you’re giving fucking information to fucking Steve [Forlano Jr.]?
VIGGIANO: Nah. Nah. Because similar to you… signal, or like XBOX 360 chat, there’s no tracing that. Good luck ever finding that. So, I mean, at worst – we’re talking worst-case scenario, maybe I said something in … like the very first one. But that’s the worst case.
This case originated from the SEC’s Market Abuse Unit’s Analysis and Detection Center, “which uses data analysis tools to detect suspicious trading patterns.” Joseph Sansone, chief of the SEC’s Market Abuse Unit, said following the unsealing of the indictment and its charges, “[t]he SEC is focused on detecting misconduct by financial industry professionals, and we will continue to use our resources to bring them to justice and bar them from the securities industry when appropriate”.
It is clear that Viggiano fully expected that the precautions taken to eliminate a paper trail or trail of hard evidence of the parties’dealings and communications regarding insider trading would protect them from being discovered. Viggiano appears to believe that communicating on an outdated video game console would be more private than communicating on a more up-to-date,widely used system, such as the Xbox One of 2013 or Xbox Series S/X of 2020.
It is unclear if the FBI was able to get ahold of any incriminating evidence from their chats, although according to Microsoft, it does not actively store or monitor voice chats made on Xbox Live. It is also unclear how exactly the recording of Viggiano seemingly acknowledging how the parties were communicating came to light, but it should be assumed that whether Salamone was persuaded into cooperating with law enforcement or whether he made the recording on his own because he was scared, that whatever evidence was presented to the two was strong.
It seems that just as quickly as technology is being used for illicit trading purposes, law enforcement units, such as the SEC’s Market Abuse Unit’s Analysis and Detection Center, are using technology to flag suspicious trading patterns, and that that is enough for them to start digging and come up with further information that can potentially confirm their suspicions of insider trading.
The eight counts of securities fraud that Viggiano has been charged with each carries a maximum sentence of 20 years in prison, and the one count of conspiracy carries a maximum sentence of an additional five years in prison. In consideration of the risks of substantial prison time and the SEC’s impressive success in detecting suspicious trading activity, even in instances where alleged inside traders go to great lengths to use technology to cover their tracks, would-be inside traders should take note and think twice before sharing and trading on material nonpublic information.
Student Bio: Paul Coste is a second-year law student at Suffolk University Law School and staff writer on the Journal of High Technology Law. Paul received a Bachelor of Science in Economics from Northeastern University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
