As Trader’s Trial Begins, Name of One Insider Stands Out

From his cubicle at Dell’s headquarters in Round Rock, Tex., Rob Ray shared insights about the computer maker that ricocheted across the country, reaching a trust company in California, a mutual fund in Manhattan and hedge funds in New York and Connecticut.

The insights also led to criminal insider trading charges against eight employees at those firms, as well as an indictment of SAC Capital Advisors, the hedge fund run by Steven A. Cohen.

Yet the authorities have not accused Mr. Ray of any wrongdoing. Mr. Ray, whose given name is Chandradip, is not cooperating with the government. Today, he works at Pepsico in investor relations, the same job he had at Dell.

The disparate fates — prosecutors have charged the traders who profited from Mr. Ray’s information, but not Mr. Ray himself — signify a rare and curious loose end in the government’s otherwise unyielding insider trading crackdown. An examination of Mr. Ray’s role in the investigation, based on a review of court documents and public records as well as interviews with people involved in the matter, raises questions about the prosecution’s strategy in the Dell case and in the broader inquiry.

Those questions loom large as the criminal trial of the former SAC trader Michael S. Steinberg began Tuesday in Federal District Court in Manhattan. Mr. Steinberg, a 41-year-old trader who was among SAC’s earliest employees, is one of the eight charged on the Dell trades; the others have either pleaded guilty or have been convicted at trial. He is SAC’s most senior employee to be charged with insider trading, and the first to stand trial.

The trial hinges in part on Mr. Ray. The prosecution of insider trading requires proof that someone like Mr. Ray wrongfully disclosed secret information in a breach of a duty to his employer. In other words, if the source did not break the law, no one who trades on the information can be held liable.

While the government has complete discretion over whether to charge someone — and may decide not to press charges for a host of reasons other than lack of guilt — lawyers for some of the Dell defendants have highlighted the government’s decision thus far to spare Mr. Ray as evidence of their own clients’ innocence. Testimony in an earlier trial suggested that Mr. Ray had no idea the information was being passed around Wall Street.

“Ray has never been charged with any wrongdoing whatsoever, a telling indication of the government’s view of his culpability,” lawyers for Todd Newman, a former employee at Diamondback Capital Management who was convicted on the Dell trades, said in court papers. The prosecutors, Mr. Newman’s lawyers wrote, made scapegoats of “only the hedge fund traders who make such an easy target in the government’s crusade against Wall Street inequality.”

The traders who pleaded guilty, some defense lawyers have theorized, yielded to pressure from the government, and decided to cooperate in the hope of being spared jail time. Since 2009, the United States attorney’s office in Manhattan has secured 76 insider trading convictions without losing a single trial.

Mr. Ray, 38, a resident of Stamford, Conn., is not out of the woods. Federal prosecutors in Manhattan and the Securities and Exchange Commission continue to view him as a suspect in the investigation, the people briefed on the case said. And in a 2011 court filing, without mentioning him by name, prosecutors labeled Mr. Ray a “co-conspirator.” In a more recent filing, they claimed he “violated Dell’s policies.”

Joanna C. Hendon, a lawyer for Mr. Ray, said in a statement that her client was “loyal and conscientious, with a reputation for integrity and good judgment.” She added, “Rob cherished his time at Dell and was unaware of any insider trading scheme.”

A Dell spokesman, David S. Frink, said that Mr. Ray left Dell in April 2010 and that the company was cooperating with the government’s investigation. A spokesman for Pepsi declined to comment, as did James M. Margolin, a spokesman for the United States attorney’s office.

Mr. Ray arrived at Dell in 2004, records show, after a stint at a Tampa, Fla., company that creates software to design bridges. His onetime boss and mentor at Dell, testifying at Mr. Newman’s trial, portrayed Mr. Ray as something of a model employee. Mr. Ray, the boss agreed, was a “very careful” employee who earned high marks on performance evaluations and took “his career very seriously.”

Mr. Ray’s legal problems arose as a result of his relationship with Sandeep Goyal. The two knew each other from business school and worked together at Dell. They were “not very close or personal,” according to a court filing, but they kept in touch when Mr. Goyal left Dell in 2006 to pursue a career as a technology stock analyst on Wall Street.

Prosecutors say that in 2008, while Mr. Goyal was working at the mutual fund company Neuberger Berman, he received secret information from Mr. Ray about Dell’s financial performance.

Unlike other insider trading cases in which traders pay for illegal tips with cash or extravagant meals and other gifts, Mr. Goyal did not provide Mr. Ray with any financial benefits. Instead, prosecutors say that Mr. Goyal gave Mr. Ray career advice, helping him try to land a job on Wall Street, which never came to fruition.

While the government has characterized their dealings as improper, a Dell investor relations executive testified during an earlier trial that Mr. Ray’s job included helping analysts like Mr. Goyal with their financial models. And Mr. Goyal testified that he concealed from Mr. Ray that he was sharing the information with other traders.

Nevertheless, prosecutors seized on what it saw as a breach. In January 2012, the government filed criminal charges against Mr. Goyal and the others. They accused Mr. Goyal of sharing the illicit tips from inside Dell with what they called a “circle of friends,” some of whom socialized together in Manhattan and the Hamptons. Together, the traders are said to have earned more than $60 million in illegal gains on Dell stock.

Of the accused, only two fought the charges, Anthony Chiasson of Level Global Investors and Mr. Newman of Diamondback. A jury convicted them last December and they are free on bail while awaiting the outcome of their appeal. In court papers, lawyers for both men have criticized the government’s tactic of charging the hedge fund traders but not Mr. Ray.

Mr. Goyal and four others pleaded guilty and are cooperating with the government. Among them was Jon Horvath, a former SAC analyst who helped build a case against Mr. Steinberg and SAC.

Jury selection began on Tuesday in Mr. Steinberg’s trial, which is expected to last about a month and shed light on the trading practices of SAC and Mr. Cohen. Mr. Goyal and Mr. Horvath are expected to testify.

Lawyers for Mr. Steinberg plan to argue that their client had no idea that the Dell financial data was improperly obtained. The government has placed him at the end of a five-person chain of information that started with Mr. Ray and found its way to Mr. Horvath, who then passed it on to his boss, Mr. Steinberg.

Unlike some other past insider trading trials, prosecutors have no wiretapped conversations to play for jurors, probably making the case more difficult to prove. The trial, then, will largely turn on the strength of Mr. Horvath’s testimony, as well as several pieces of email evidence.

Mr. Steinberg, who was arrested in March at his Park Avenue apartment, was also accused of insider trading in shares of Nvidia, a chip maker. But as with Mr. Ray, prosecutors have not charged the original source of that supposed tip, a former executive in Nvidia’s finance department.

A crucial piece of evidence likely to surface at trial is an email from August 2008 that Mr. Horvarth sent to Mr. Steinberg just before Dell’s quarterly earnings announcement. He wrote that he had “a 2nd hand read from someone at the company,” adding, “Please keep to yourself as obviously not well known.”

Mr. Steinberg replied: “Yes normally we would never divulge data like this, so please be discreet.”

Another SAC trader forwarded Mr. Horvath’s email to Mr. Cohen, according to the government. Federal regulators said that Mr. Cohen, who has not been criminally charged, quickly sold Dell stock before the company announced its financial results.

Three hours after the earnings release, Mr. Cohen emailed Mr. Steinberg: “Nice job on Dell.”

Researcher Alain Delaqueriere contributed to this article.