DealBook: Fund Manager Settles Case in Dell Insider Trading Ring

Paul Sakuma/Associated PressDell’s offices in Santa Clara, Calif.

In August 2008, in the midst of the financial crisis, a large bet that the shares of Dell would drop proved highly lucrative for a tight-knit group of traders. It has also proved to be bountiful for the government in its campaign to root out insider trading on Wall Street.

On Friday, Victor Dosti, a former portfolio manager at the Whittier Trust Company, settled a civil action brought by federal securities regulators who accused him of illegally trading Dell shares. He is the ninth person charged by the government related to the Dell trade.

Mr. Dosti and Whittier, a money manager based in South Pasadena, Calif., agreed to pay about $1.7 million to resolve the lawsuit, which was filed by the Securities and Exchange Commission in Federal District Court in Manhattan. The S.E.C. said that Whittier earned profits and avoided losses of about $725,000 by trading on illicit tips about Dell as well as the technology companies Nvidia and Wind River Systems.

The secret information was funneled to Mr. Dosti by Daniel Kuo, a former analyst at Whittier who pleaded guilty last year to criminal charges that he was part of the insider-trading scheme of traders, analysts and corporate insiders who earned about $70 million in profits by trading on secret information that came from inside Dell and other companies.

“Time and again, Dosti received what he knew was inside information from Kuo and traded on it to generate illicit gains,” Sanjay Wadhwa, senior associate director of the S.E.C.’s regional office in New York, said in a statement.

Gary Lincenberg, a lawyer for Mr. Dosti, declined to comment. Robert Anello, a lawyer for Whittier, said that his client was glad to have the matter behind it and that “the conduct engaged in by two former employees is completely contrary to the core values of this organization.”

Two of the nine individuals tied to the Dell insider-trading ring are former employees of SAC Capital Advisors, the giant hedge fund that is at the center of the government’s investigation. Michael Steinberg, a longtime SAC trader, was charged as part of the ring that illegally traded Dell and Nvidia. His name first surfaced last fall, when Jon Horvath, a former SAC analyst, pleaded guilty to insider trading in the two technology stocks and said he shared the information with Mr. Steinberg.

Mr. Steinberg has pleaded not guilty and is scheduled to stand trial on Nov. 18.

Whittier fired Mr. Dosti, 49, last January after federal prosecutors first brought charges related to the Dell and Nvidia trades. Mr. Dosti, an Albanian immigrant, received an M.B.A. from the University of Chicago and worked at Northern Trust and Citigroup before joining Whittier about a decade ago.

Corner Office: A Good Manager Is Much More Than a Messenger

Q. You’ve started more than five companies. Did you have the entrepreneurial itch when you were a kid?

A. It’s funny, because the likelihood of me sitting here today and talking about these companies was exactly zero when I was a kid. I lived in Communist Czechoslovakia, and when I was 15, I was sent to vocational school to study accounting. When I was 18, I decided to study computer science, but we didn’t have access to any computers. So it was more science than computers. The first time I saw a computer or had access to a PC was when I was almost 25.

Q. Tell me about your leadership style.

A. A big part of my leadership approach is about confidence, and confidence comes from understanding. If you have a deep understanding of the industry you’re in, and of the problem you are solving, and you are ahead of everybody else in your space, then you can give your team the confidence to trust you. So if people are questioning what you’re doing, and the task looks impossible, you have to give them the confidence that we have a vision, and we understand the space better than anybody else.

The second thing is the importance of communication skills. Having a vision and having confidence doesn’t mean anything unless you’re able to communicate it to your team, investors and customers. The ability to communicate well didn’t come easily for me. I always assumed that everybody would see things the same way I see them, and now I understand it takes a lot of time to get people aligned.

Q. What about the culture you’re trying to foster?

A. The No. 1 thing for us is openness. It’s about trust — people can trust me, and I can trust people. So we have open calendars, for example, and certain rituals. Most Thursdays, I get in front of everybody to answer questions. Leading up to that, people will put questions online and then vote on the most interesting ones.

Q. And the open calendars?

A. Anyone at the company can see my calendar. Sometimes I’m surprised by how many people ask me what a particular meeting is for. You can never underestimate how curious people are about the C.E.O.

Q. What else have you learned about culture?

A. You can never be out of your role as a C.E.O. You always have to be careful about how you carry yourself and how you act with people because, again, it’s about confidence. For me, any start-up is one big, giant mood swing — every bit of news is extremely bad or extremely good and that’s what makes it so difficult for some people to work in that kind of environment. That’s why the C.E.O. has to demonstrate confidence, so they can say, “Here’s the bad news and here is what we’re doing about it.”

Q. Anything you have a particularly low tolerance for in your organization?

A. I have a really low tolerance for people making comments, especially managers, without actually positioning them.

Q. What does that mean?

A. Somebody might say, for example, that our competition has a new product. But is it good news or bad news? Should we do something about it? I always expect my managers to have an opinion and they should not be just messengers. A manager is not a messenger. I don’t like my managers essentially talking to their people without being able to express their opinion and position what they’re discussing.

Q. Anything else?

A. People know that I hate long e-mails and that all of the e-mails they send me, with a few exceptions, should always be short enough to fit on the screen of my iPhone. If you send me an e-mail, and I need to scroll down to read it all, you’ve lost me.

Q. Let’s talk about hiring. How do you do it?

A. I’m usually the first person to meet with a new candidate, because I’ll do the selling. People have options, and when they come to us, we’re not the only company they look at. We want them to be extremely committed to the process, even the process of hiring. They have to come and interview with 10 people and do homework. The best way to do that is to get them excited about the company and for me to sell them the vision and talk about the culture and why we will win. Then I’m usually the last one who sees that person again and then it’s a real interview.

Q. And so what are you looking for in that interview?

A. Raw I.Q. is No. 1, but the second quality is the ability to be part of the team. So the question I most consistently ask people is, “Tell me about a time in your career when you felt in the zone, where you felt you performed the best. It doesn’t need to be the most recent experience. It doesn’t need to be the most high-level job. I just want to understand when you were most excited, and at the top of your game. Who helped you to develop that? What was the environment? Why did you feel like that? What was the company? What was special about the company, about the product, about the space, about you?”

I usually focus on that moment because I want to understand how people got there and whether we can replicate that with this person.

Q. What is your very best skill — the thing that sets you apart from others?

A. I’m not a developer, and I don’t write code, but I have the ability to see where technology is going to be in five years. I can see it ahead of most V.C.’s and most analysts and most customers. If you look at all of my companies and my track record, the results show that I was more right than not. My secret thing is that I can see stuff that nobody else can see.

Q. And where do you do your best thinking?

A. Part of working in the big mood swing of a start-up is that you have to somehow get out of it. So every Saturday and Sunday, I’m on a bike for at least a couple of hours. I bike alone because those are the moments when I organize my ideas. Being alone is very helpful for a C.E.O. and I have very few of those moments. I also like long flights.

DealBook: Hedge Fund Manager Loeb Targets Sony for a Breakup

Steve Marcus/ReutersDaniel S. Loeb’s hedge fund, Third Point, has amassed a stake of about 6.5 percent in Sony.

3:42 a.m. | Updated

An American hedge fund billionaire known for starting big fights has called for a breakup of the entertainment and electronics colossus Sony, according to people briefed on the matter, possibly setting off a battle that could roil Japan’s famously staid corporate culture.

The call, which came on Tuesday, will most likely be viewed by government officials and corporate leaders in Tokyo as a shot across the bow from Wall Street, just as Western investors begin piling into Japanese stocks.

The hedge fund manager, Daniel S. Loeb, is pressing Sony to spin off part of its entertainment arm, which includes one of the biggest film studios in Hollywood and one of the largest music labels in the world, responsible for movies like “Skyfall” and artists like Taylor Swift.

Mr. Loeb — known for ousting Yahoo’s former chief executive and luring Marissa Mayer away from Google to run the company — also signaled that he would accept a seat on Sony’s board.

His hedge fund has quietly amassed a stake of about 6.5 percent in Sony, making it one of the biggest shareholders. The holding, made up of stock and derivatives, is valued at about $1.1 billion.

Still, even big Japanese investors have often faced resistance in seeking changes at companies, a hurdle that may be significantly higher for a foreign hedge fund manager.

A spokesman for Sony, Shiro Kambe, said in a statement that the company welcomes investments. “We are focused on creating shareholder value by executing on our plan to revitalize and grow the electronics business, while further strengthening the stable business foundations of the entertainment and financial services businesses,” he said.

But Mr. Kambe also pointed to repeated assertions by Sony’s chief executive, Kazuo Hirai, that Sony Entertainment contributes significantly to the overall company and is not for sale. “We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy,” he said.

Mr. Loeb, 51, the founder of the hedge fund Third Point, flew to Tokyo this weekend for three days of meetings with government officials, regulators and senior Sony executives, according to people briefed on the matter. He hand-delivered a letter on Tuesday to Mr. Hirai that praised a turnaround effort but asked for more.

“So while Third Point supports your agenda for change, we also believe that to succeed, Sony must focus,” Mr. Loeb wrote in the letter, a copy of which was obtained by The New York Times.

After the meeting, the hedge fund manager told associates that he was impressed by Mr. Hirai and supported management, according to a person briefed on the matter.

Mr. Loeb said he believed that spinning off a portion of the entertainment business to Sony shareholders could sharpen the company’s focus and lead to higher profit margins, while helping to revive the core electronics business. He has also contemplated a potential spinoff or sale of other operations, including Sony’s insurance division, which accounted for much of the company’s profit last quarter.

The campaign is a bet that Japan will prove the next gold mine for global investors. Long hobbled by a so-called lost decade of little economic growth, the country has come to life in recent months under the stewardship of Shinzo Abe, who as prime minister has promoted policies meant to attract private investment. Mr. Loeb is betting that Mr. Abe will expand deregulation.

“Under Prime Minister Abe’s leadership, Japan can regain its position as one of the world’s pre-eminent economic powerhouses and manufacturing engines,” Mr. Loeb wrote in his letter.

Despite its decade-long slump, Sony, the 67-year-old electronics pioneer, remains one of the most prominent companies in Japan, with a market value of roughly $18 billion.

Still, Mr. Loeb has plenty of ammunition. Shares of Sony have plunged nearly 85 percent over the last 13 years. The company long ago ceded its crown as the king of cool electronics to Apple, and its dominance in televisions was eroded by the emergence of Korean rivals like Samsung and LG.

Last week, Sony reported its first annual profit in five years. But it reached that milestone thanks largely to the weakening yen and some belt-tightening, including the consolidation of businesses and the sale of its American headquarters.

Sony’s chief executive, Mr. Hirai, is scheduled to make a presentation about the company’s turnaround plan next week. He has argued that despite having come late to the era of digital media, the company that made the Walkman, the Trinitron television and the PlayStation can rebound.

To Mr. Loeb, more must be done, starting with the spinoff of Sony Entertainment. Though the division accounts for more than 40 percent of the company’s enterprise value, he said in his letter that it needed discipline to raise its profit margins. Mr. Loeb estimated that a partial spinoff of the entertainment business could bolster Sony’s share price by as much as 60 percent.

In his letter, Mr. Loeb proposed handing 15 to 20 percent of Sony Entertainment to existing shareholders. His firm would be willing to backstop the initial public offering up to $2 billion to ensure its success.

Other underappreciated assets include the company’s 60 percent stake in Sony Financial, which largely sells life insurance policies, as well as real estate holdings and stakes in other companies. And Mr. Loeb is expected to argue that Sony’s electronics division must sharply reduce costs, including by taking a cue from its protégé, Apple, in focusing on a few core products.

Mr. Loeb has recently expressed his interest in Japan. Referring to the changes by the Abe government, he called it “a huge game change” at an industry conference last week. “And there’s a lot more room to go,” he added.

Mr. Abe has called his revival effort a plan of “three arrows,” including aggressive monetary easing by the Bank of Japan and enormous stimulus spending by the government.

So far, that effort appears to have drawn investor plaudits. The yen weakened in value last week, to 100 to the dollar, a level unseen in four years, helping local companies like Sony and Toyota. And the Nikkei 225-stock index has risen 43 percent so far this year. At the same time two years ago, the Nikkei was down 5.7 percent.

Shares in Sony rose 1.2 percent in Tokyo on Tuesday, while the Nikkei closed down 0.16 percent.

But it is the third arrow that has Mr. Loeb’s attention. The Abe government hopes to shed Japan’s reputation as a land of strict hierarchy and bureaucracy. Business mistakes were often seen as shameful, and outright confrontation largely disdained.

“There’s an entrenched management culture there,” said Lawrence B. Lindsey, a former top economist in the administration of President George W. Bush. “Activists aren’t particularly popular here among management, and they won’t be popular in Japan either.”

No less than Howard Stringer, Sony’s own chairman, has criticized the status quo.

“Japan is a harmonious society which cherishes its social values, including full employment,” he said in a speech last year. “That leads to conflicts in a world where shareholder value calls for ever greater efficiency.”

Yet there have been changes. The percentage of foreign ownership in companies on the Tokyo Stock Exchange nearly quintupled, to 24 percent, from 1990 to 2008. And Japanese shareholders have increasingly adopted the aggressive tactics of Western fund managers.

Sony is the biggest bet yet for Mr. Loeb, an intense California native who built his name largely upon acidly written letters, berating targets for mismanagement and calling for change.

The strategy has proved profitable. Third Point’s returns are up 13.3 percent this year and up 2.6 percent for the first week of May. Forbes estimates Mr. Loeb’s net worth at about $1.5 billion.

Perhaps the most prominent victory has been Third Point’s investment in Yahoo, where Mr. Loeb pushed for the dismissal of a chief executive after exposing the executive for falsifying academic credentials.

Mindful of Japanese decorum, however, Mr. Loeb strikes a more conciliatory tone in his letter to Mr. Hirai of Sony. His calls are couched as suggestions aimed at improving the company, rather than aggressive demands.

“Third Point would not have made this substantial investment if we did not believe in a bright future for Sony’s global brand, superior technology, and dedicated employees,” he wrote. “We are confident that by acting as partners, Sony will grow stronger.”

Hiroko Tabuchi contributed reporting.