By Bernard Vaughan

NEW YORK (Reuters) - Former Diamondback Capital Management portfolio manager Todd Newman was sentenced to 4-1/2 years in prison on Thursday for insider trading in the stock of Dell Inc and Nvidia Corp .

U.S. District Judge Richard Sullivan also ordered Newman, 48, to forfeit $737,724 and to pay a $1 million fine.

Sullivan called Newman a "decent" man and said it "breaks my heart" to have read letters about the impact his incarceration could have on his 12-year-old daughter, but that a stiff penalty was warranted.

"This is a serious crime," Sullivan said, before delivering his sentence in U.S. District Court in Manhattan. "This is a crime that does have an impact across an economy and across a society."

Sullivan reserved judgment on whether Diamondback should receive restitution as a victim of Newman's crimes. Prosecutors had requested Newman reimburse Diamondback as much as $12.9 million.

The firm, which closed in December, was seeking $39 million as it seeks to recoup costs from its ties to the investigation, which caused clients to withdraw nearly three-fourths of the more than $5 billion of assets it once managed. The firm also previously agreed to pay $9 million to settle civil charges.

But Sullivan asked if it was "kind of perverse" to consider Diamondback a victim.

Diamondback should have prevented the trades from happening, and conceivably could have been charged, he said. And it could discourage firms from imposing strict compliance procedures, allowing them to either profit from undetected insider trading or seek restitution from traders when they're caught.

"It's hard to get one's head around that Diamondback is a victim when Diamondback could have been charged," Sullivan said.

Newman and Anthony Chiasson, co-founder of now-defunct hedge fund Level Global Investors, were convicted of conspiracy to commit securities fraud and securities fraud in December. Chiasson awaits sentencing on May 13.

Newman is the 48th person to be sentenced since August 2009 in the government's vast crackdown on insider trading. A total of 73 people have been convicted, according to the U.S. Attorney's Office in Manhattan.

"Efforts to cheat the market by gaining an illegal edge ultimately lead to a loss of one's liberty, as it did for Todd Newman today," Manhattan U.S. Attorney Preet Bharara said in a statement.

Federal prosecutors had requested that Newman serve as much as 6-1/2 years in prison for his crimes, which led to roughly $4 million of illegal profit. Newman was involved in a scheme that lasted more than two years and involved several analysts who Newman knew were providing insider information, said Antonia Apps, an assistant U.S. attorney.

"That was all transparent to Mr. Newman," Apps said.

Newman, who did not speak at his sentencing, had requested a sentence "significantly below" what prosecutors wanted; he also had asked to remain free on bail pending appeal of his conviction. Sullivan reserved judgment on whether Newman will remain free pending his appeal.

Newman's attorneys portrayed him as a devout father and a "fundamentally kind, generous and decent human being."

"This is not who he is," Newman's lawyer, John Nathanson, told Sullivan. "His reputation has been decimated."

The case is U.S. v. Newman, U.S. District Court, Southern District of New York, No. 12-cr-00121

(Reporting By Bernard Vaughan; Additional reporting by Jonathan Stempel and Nate Raymond; Editing by Leslie Adler and Andrea Ricci)

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