Former Hedge Fund Founder Steven Fortuna Sentenced in Manhattan Federal Court for Insider Trading

Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEVEN FORTUNA, who co-founded the hedge fund S2 Capital LLC (S2), was sentenced today to two years of probation for his participation in an insider trading scheme in which he obtained and traded on material, non-public information (Inside Information) about various publicly traded companies from employees at other hedge funds. FORTUNA pled guilty in October 2009 to three counts of conspiracy to commit securities fraud and one count of securities fraud pursuant to a cooperation agreement with the government. He was sentenced today in Manhattan federal court by U.S. District Judge Sidney H. Stein.

According to the information, statements made during FORTUNA’s guilty plea proceeding, and the government’s sentencing submission in his case:

From July 2008 through March 2009, while working as a portfolio manager at a hedge fund he co-founded, FORTUNA obtained Inside Information concerning various technology companies from employees at other hedge funds for the purpose of trading on that information. The Inside Information was disclosed by company insiders in breach of their duties to their respective employers.

For example, in July and August 2008, FORTUNA obtained Inside Information concerning Akamai, Inc. (Akamai) from Danielle Chiesi, a portfolio manager at New Castle Partners, a hedge fund. Chiesi told FORTUNA that Akamai planned to report that its revenue guidance for the following quarter would miss expectations and that, internally, the company believed that its stock price would fall following the quarterly earnings announcement. FORTUNA executed trades based on that Inside Information, and earned approximately $2.4 million in profits for S2.

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As part of the conditions of his probation, FORTUNA, 50, of Westwood, Massachusetts, was ordered to serve six months of home confinement with electronic monitoring and 120 hours of community service during each of the years of his probation. He was also ordered to pay forfeiture in the amount of $200,000 and a $400 special assessment fee.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Antonia M. Apps is in charge of the prosecution.