John Marshall Mantel for The New York TimesDanielle Chiesi outside of federal court in Manhattan on Wednesday.7:49 p.m. | Updated
In August 2008, Danielle Chiesi, an executive at a New York hedge fund, was swapping confidential information with an associate about a pending reorganization of Advanced Micro Devices, a publicly traded semiconductor company.
“I swear to you in front of God,” she said. “You put me in jail if you talk. … I’m dead if this leaks. I really am … and my career is over.”
Ms. Chiesi’s remarks, which were being recorded by the government, proved prescient.
On Wednesday, standing before a federal judge in Manhattan, Ms. Chiesi pleaded guilty to three counts of participating in an insider-trading conspiracy.
“Today, Danielle Chiesi admitted to exploiting her access to valuable, nonpublic information to reap $1.7 million in illegal gains,” said Preet Bharara, the United States attorney in Manhattan, in a statement. “Today’s plea should send yet another strong message that we have zero tolerance for privileged professionals who game the system and who think the rules apply only to everyone else.”
Ms. Chiesi is a central figure in the government’s sprawling, multiyear investigation into insider trading on Wall Street. The inquiry centers on the prosecution of Raj Rajaratnam, a billionaire investor who helped found the Galleon Group hedge fund. Mr. Rajaratnam, who has pleaded not guilty and whose trial is set for Feb. 28, is accused of receiving illegal tips from Ms. Chiesi.
The investigation is being led by Mr. Bharara, whose office has used extraordinary tactics in its pursuit of insider trading. Much of the evidence in the case against Ms. Chiesi and others was secured from wiretaps, a technique more commonly seen in drug and organized crime cases.
Ms. Chiesi’s guilty plea comes as the Justice Department is pursuing another round of insider-trading cases involving so-called expert-network research firms. Federal prosecutors recently brought charges against specialists tied to these firms, who are accused of selling illegal tips about publicly traded technology companies to hedge funds.
Since the government arrested Mr. Rajaratnam and Ms. Chiesi in 2009, at least 40 have been charged with insider-trading crimes. Of those, 25 have pleaded guilty.
Ms. Chiesi is scheduled to be sentenced on May 13. The government has recommended a prison sentence of 37 to 46 months.
Ms. Chiesi, 45, grew up in Binghamton, N.Y., and began her Wall Street career in the late 1980s. After stints at several brokerage firms, she joined Bear Stearns. There, she worked under Mark Kurland, a stock analyst who became her mentor and eventually recruited her to work at New Castle Funds, an equity hedge fund that he had set up within Bear Stearns and that was later spun off.
Mr. Kurland, who admitted to trading on illegal tips provided to him by Ms. Chiesi, was among the first defendants to plead guilty in the Galleon case. He is serving a 27-month prison sentence.
At New Castle, Ms. Chiesi covered technology companies and aggressively built a network of public company executives that she would press for information. Several of those executives have pleaded guilty and are serving prison time, including Robert W. Moffat Jr., a former senior executive at I.B.M. who admitted to a romantic relationship with Ms. Chiesi.
Ms. Chiesi also swapped information with other traders, and prosecutors say those people included Mr. Rajaratnam. The two shared a specialty in technology stocks, and the government says that Ms. Chiesi passed along confidential information to Mr. Rajaratnam that she had learned from her network.
Unbeknown to Mr. Rajaratnam and Ms. Chiesi, the government was wiretapping their conversations. Both were arrested, along with four others, in the early morning of Oct. 16, 2009.
Mr. Rajaratnam and Ms. Chiesi both mounted an aggressive defense, arguing that a judge should disallow prosecutors from using the wiretap evidence at trial because the government had violated their constitutional rights in recording their conversations.
But their defense suffered a major blow in November, when Judge Richard J. Holwell ruled that prosecutors could use the wiretaps at trial. The government says it has about 2,400 recorded conversations between Mr. Rajaratnam and his associates, some of whom are accused of being accomplices.
That ruling, in part, prompted Ms. Chiesi to engage in plea negotiations with the government, said people with direct knowledge of the talks who spoke only on the condition of anonymity.
On Wednesday, Ms. Chiesi, dressed in a black pantsuit with her long platinum-blond hair tied up in a bun, kissed her mother before taking a seat at the defense table where she was flanked by her lawyers.
Ms. Chiesi admitted that she had obtained material, nonpublic information about I.B.M., A.M.D. and Sun Microsystems from company executives and shared the information with her boss and “with others in the hedge fund industry.” She did not name names.
“This guilty plea causes me great pain, and I’m deeply ashamed by what I did,” said Ms. Chiesi, who told the judge that she was under psychiatric care and taking anti-anxiety drugs. “I ruined a 20-year career that I truly loved and have brought disrepute to what is an honorable profession.”
After expressing remorse to her family — her sister and two teenage nieces were also in the courtroom — Ms. Chiesi began sobbing. “I apologize to them and the court,” she said, fighting through tears.
“Dani will have no further comment beyond what was said in court,” said Alan R. Kaufman, a lawyer for Ms. Chiesi. “She is hopeful that by acknowledging what she did do and what she did not do, she can move on with her life.”
Ms. Chiesi is not cooperating with the government, nor have prosecutors asked for her cooperation or for her testimony in the case against Mr. Rajaratnam, said Mr. Kaufman.
With only about a month before trial, Mr. Rajaratnam has little incentive to plead guilty, legal experts say. Unlike Ms. Chiesi, who was by no means a Wall Street mogul, Mr. Rajaratnam possesses many resources. In 2008, Forbes magazine estimated his net worth at $1.8 billion. Also, the government was not likely to give Mr. Rajaratnam much of a deal in exchange for a guilty plea at this advanced stage in the case.