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Nov-07-2009CORRECT:Insider-Trading Probe To Have Lasting Effects -sec's Khuzami(topic overview)
CONTENTS:
- Bharara said the arrests of Rajaratnam and the five others had been a "wake-up call for Wall Street" and that Thursday's announcement meant "the alarm bells have only grown louder. (More...)
- Five of the 14 have already pleaded guilty, including Roomy Khan, the tipster who let authorities in on the web of alleged insider trades surrounding Galleon founder Raj Rajaratnam. (More...)
- At the center of the web was Zvi Goffer, a trader who worked at the New York brokerage Schottenfeld Group during 2007, when some of the transactions were made. (More...)
- Three weeks ago, Mark Kurland, 60, of Mount Kisco, a former head of an investment company called New Castle Partners, was charged along with Rajaratnam, former IBM executive Robert Moffat and three others in the first leg of the case. (More...)
- The SEC, which regulates trading in securities, has filed civil charges in the cases. (More...)
- Investigators said Rajaratnam and the five others, charged on October 16, made illegal stock trades gathered over more than three years. (More...)
- In a separate complaint filed yesterday, authorities described a spate of illegal trading tied to the March 2007 acquisition of software firm Kronos by private investment firm Hellman & Friedman. (More...)
- Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. (More...)
- Kimelman, a founder of Incremental Capital, is the second Westchester executive charged in the case. (More...)
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Bharara said the arrests of Rajaratnam and the five others had been a "wake-up call for Wall Street" and that Thursday's announcement meant "the alarm bells have only grown louder. "Over the last three weeks, we have charged 20 defendants with more than 40 million dollars worth of alleged insider trading," he said. The central figure among those charged Thursday was Zvi Goffer, who worked for Galleon and set up the hedge fund Incremental Capital. Goffer is alleged to have played a key role in the ring in which he "paid sources for inside information" about companies, including news of mergers and acquisitions, then made deals on the stock market, according to the criminal complaint filed in a federal court in Manhattan. Others charged Thursday with insider trading include current and former employees at Galleon, Ropes and Gray law firm, and Incremental Capital. [1] Bharara said that total profits alleged by prosecutors was $40 million while the Securities and Exchange Commission raised the total to $53 million, saying it includes millions in profits not described in the criminal complaints. He said he knew people would ask if the insider trading case was the tip of the iceberg of illicit trading on Wall Street. "We don't have an answer to that but we aim to find out," he said. He said eight people were arrested Thursday on securities fraud charges and another five have already pleaded guilty and are cooperating. Another person is still at large, he said. The charges against Kimelman stem from his association with Zvi Goffer, 32, who federal authorities said ran an insider trading operation in 2007 and 2008 that included a lawyer who allegedly tapped into his firm's work on acquisition deals to feed inside tips to Goffer. A criminal complaint filed in U.S. District Court in Manhattan says that Goffer provided his co-conspirators with pre-paid cell phones to avoid detection by law enforcement. Federal authorities were able to tap phones in the case and used those intercepts along with an informant to help build their case. The complaint charges that Kimelman and Goffer were caught on one call conspiring to dig up research reports to cover their insider knowledge for planned trades. "Get everything printed out because if we're going to make a big trade and make a big bet and it works. it's always good to have that on file why you did it," Goffer said to Kimelman according to a transcript of the call.[2] Bharara said eight people were arrested yesterday on securities fraud charges and another five already have pleaded guilty and are cooperating. Another person is still at large, he said. According to papers filed yesterday in U.S. District Court in Manhattan, Zvi Goffer operated an insider trading network in 2007 and 2008 that included a lawyer who fed tips gleaned from his firm's work on acquisition deals. Goffer, 32, of Manhattan, worked at Shottenfeld Group LLC in Manhattan in 2007 and at Galleon Group for the first nine months of 2008 before he started his own trading firm, the papers said. A criminal complaint prepared by FBI Agent David Makol said Goffer paid others to obtain secrets about public companies' planned merger and acquisition activity that he then used to execute profitable securities trades. A lawyer representing him did not immediately return a phone call for comment. The complaint said Goffer provided conspirators with prepaid cellular telephones so they could communicate in a way that reduced their chance of detection by law enforcement. Among those who fed tips that reached Goffer was Arthur Cutillo of Ridgefield, a lawyer with Ropes & Gray, a law firm that held secrets regarding mergers and acquisitions, the complaint said.[3]
Five of the 14 have already pleaded guilty, including Roomy Khan, the tipster who let authorities in on the web of alleged insider trades surrounding Galleon founder Raj Rajaratnam. These arrests follow the arrest last month of Galleon founder Rajaratnam and five others, including IBM and Intel executives, in a $20 million insider-trading scheme. Galleon, which once had $7 billion under management, is winding down its operations as a result of the case. Those charged included : Zvi Goffer, the founder of Incremental Capital and a former employee at Galleon and Schottenfeld Group; Arthur Cutillo, an intellectual property lawyer at Ropes & Gray LLP; Jason Goldfarb, another New York attorney; Craig Drimal, who worked in Galleon's office space, but wasn't employed by the firm; Atheros executive Ali Hariri; and several individuals associated with Incremental Capital'''Emanuel Goffer, Michael Kimelman, and David Plate. [4] NEW YORK (Dow Jones)--Prosecutors in New York charged nine people with crimes Thursday--including lawyers, a former Moody's Corp. (MCO) analyst and the founder of trading firm Incremental Capital--and announced five others pleaded guilty in an insider-trading case that allegedly netted $33 million in improper funds.[5]
NEW YORK (Dow Jones)--The insider-trading crackdown that has ensnared numerous traders, executives and lawyers could have wide-reaching implications in the way enforcement officials conduct future criminal and civil investigations. U.S. prosecutors' move Thursday to charge 14 people with insider trading, including hedge fund managers, lawyers, analysts and executives, "indicated a significant expansion as to where we are going" with this case, said Robert Khuzami, director of enforcement at the Securities and Exchange Commission, on the sidelines of an industry.[6] U.S. prosecutors escalated their crackdown on insider trading on Wall Street yesterday as they filed criminal charges against 14 people, including hedge fund managers, traders and attorneys.[7] The cooperation agreements from the five people who've already pled guilty to various counts of insider trading read like a warning shot to others on Wall Street. While the court filings don't name any names, and identities of potential co-conspirators are shrouded behind references like 'a portfolio manager for a certain hedge fund,' it is clear investigators have put together a list of people they suspect of wrongdoing. The cooperation deals signed last month by Ali Far and Richard Choo-Beng Lee, as well as the criminal complaints filed against them, make a nice roadmap for where prosecutors would like to take this investigation.[8]
Reuters reports that the list includes Zvi Goffer, of Incremental Capital hedge fund; Arthur Cutillo, a former attorney with law firm Ropes & Gray; Jason Goldfarb, an attorney; Craig Drimal, a former employee in Galleon's office; and Emanuel Goffer, Michael Kimelman and David Plate, all of Incremental Capital. Now none of these folks are bona fide Wall Street stars. I'm inclined to think that the big names--if that's what they are--have already been arrested. This doesn't look like it will eclipse the insider trading scandals of the 1980s, when some truly big names were involved--the likes of Ivan Boesky and Michael Milken and top investment bankers at premier funds. This is plenty big and we may see the likes of Raj Rajaratnam go to trial. He has been saying he will fight.[9] New York (HedgeCo.net) ''' Allegations against 14 Wall Street professionals have emerged from the SEC's'' ongoing investigation of insider trading at hedge funds and stock trading firms.[10] NEW YORK ''' U.S. prosecutors had charged 14 people, including a former employee at the offices of the Galleon Group hedge fund firm, as part of an investigation of an alleged 20m insider trading scheme, it emerged yesterday.[11] Atheros Communications Inc executive Ali Hariri has been charged with passing on confidential information to a hedge fund manager Ali Far who has pleaded guilty of fraud and is now reportedly cooperating with the investigators. "People will probably ask just how pervasive is insider trading these days? Is this just the tip of the iceberg? We aim to find out," said Preet Bharara, the U.S. attorney for the southern district of New York.[12] U.S. Attorney Preet Bharara and New York's assistant FBI director Joseph Demarest said the accused took part in insider trading schemes that "generated more than 20 million dollars in illegal profits." They included hedge fund managers and trading firm executives, lawyers and corporate insiders, the prosecutor and FBI officer said in a statement.[1]
Last month, Danielle Chiesi, an employee of New York hedge fund New Castle Funds LLC, was arrested for insider trading of Akamai stock. It was alleged that Chiesi shared her inside information with Fortuna. His S2 hedge fund used the knowledge to make illicit trades of Akamai stock which netted the fund a profit of about $2.4 million.[13] Arthur Cutillo, a New York attorney for Boston law firm Ropes & Gray LLP, was arrested and charged with leaking inside information about a Bain Capital LLC plan to buy 3Com Corp. in Marlborough. Florida hedge fund investor Roomy Khan pleaded guilty to making illicit trades in several stocks, including Kronos Inc. of Chelmsford, netting her about $1.6 million in profits. She is cooperating with authorities.[14]
Five hedge fund industry figures who previously were charged with insider trading pleaded guilty to the crimes, the U.S. attorney said.[15] A crackdown on insider trading widened Thursday as five people in the $1.5 trillion hedge fund industry pleaded guilty to criminal charges and eight others were arrested.[15]
The charges come three weeks after billionaire investor Raj Rajaratnam, founder of the Galleon hedge fund, and five others, were accused in an insider trading scheme that prosecutors said involved gathering information from executives from companies across corporate America, including IBM and Intel.[7] Galleon was shut down last month and Rajaratnam and five others were arrested in what prosecutors called "the largest hedge fund insider trading case in history."[1]
Michael Kimelman, 38, faces up to 25 years in prison after being charged Thursday with securities fraud and conspiracy in connection with a growing $53 million insider trading case that has already resulted in the arrest of one of the world's wealthiest men, hedge fund manager Raj Rajaratnam.[2] NEW YORK, Nov 5 (Reuters) - Fourteen people were charged with fraud and conspiracy in a dramatic widening of an insider trading scandal that has ensnared hedge fund managers, top Silicon Valley executives and a bevy of white-shoe advisers. In complaints that read like scripts for the TV series "The Sopranos," investigators alleged suspects dropped off bags full of cash, used prepaid cellphones to dodge wiretaps, and used nicknames such as "the Greek" and "the Octopussy."[16] NEW YORK, Nov 5 (Reuters) - Ali Far and Choo Beng Lee, the former hedge fund traders turned government informants in the Galleon insider trading case, have admitted to engaging in illegal insider trading for many years, according to their cooperation agreements. In the case of Lee, the agreements suggest that he engaged in illegal insider trading while working at Steven Cohen's SAC Capital, the Connecticut-based hedge fund.[17] A defendant in the Galleon Group insider trading scandal used to work at SAC Capital and is thought to have peddled his dishonest dealing while managing money for Steven Cohen. Richard Choo Beng Lee, who became a cooperating witness for the federal government in its insider trading probe, ended his association with $14 billion hedge fund SAC in 2004.[18] In Lee, it would appear prosecutors would like to build a path right to the doorway of Steven Cohen's SAC Capital, a $12 billion behemoth and one of the world's best-known hedge funds. As part of his deal with prosecutors, Lee has agreed to tell authorities of any insider trading he may have done while working as tech analyst at SAC Capital from 1994 to 2004. Now that's not to say Lee has told prosecutors he engaged in insider trading while at SAC. And there's nothing in the agreement that suggests Cohen did anything wrong, or anyone at SAC Capital was aware of any potential wrongdoing by Lee. It appears that prosecutors want to find out if something bad went down at SAC Capital when Lee worked there.[8] Lee may provide prosecutors with more than a view into SAC Capital. In a criminal complaint, authorities allege that Lee conspired to engage in insider trading with portfolio mangers from at least four unnamed hedge funds other than his own Spherix.[8]
Far, a Galleon alum, teamed up with Lee in 2007 to open Spherix ( SPEX - news - people ) Capital, a short-lived tech-focused hedge fund that authorities say was a hotbed of insider trading activity.[8] Net widens in Galleon investigation Boston Globe The biggest hedge fund insider trading case in U.S. history ensnared more Massachusetts companies yesterday as federal investigators brought new charges against 14 people, including a Westwood investor.[14] NEW YORK, Nov 6 (Reuters) - The biggest insider trading prosecution in two decades still would not be more than a one- or two-day story if it wasn't for the criminal charges against hedge fund titan Raj Rajaratnam.[8]
Federal prosecutors filed new criminal charges against several Wall Street lawyers and traders for allegedly being part of an insider-trading network run by Zvi Goffer, a former proprietary trader at Schottenfeld Group LLC, a hedge fund firm based in New York.[15] The U.S. Department of Justice has filed a criminal case against 14 individuals who it claims were part of an insider-trading network that made $20 million in illegal profits, The Wall Street Journal reports. The suit claims Zvi Goffer, a former trader at Galleon and hedge fund Schottenfeld Group, was the key figure in a ring that included his brother, a lawyer at the firm Ropes & Gray, and six other traders and hedge funds.[19]
A key figure in the charges is Zvi Goffer, a former employee of New York hedge fund firm Galleon Group. Other defendants allegedly referred to him as "Octopussy" -- a reference to a 1983 James Bond film -- because, according to the complaints, he got confidential information from numerous sources. Goffer used disposable cellphones to hide his actions and after finishing with one of them, broke it in half, bit its memory card, threw away half of the phone and instructed another defendant to dispose of the other half elsewhere, the complaints allege.[20] A lawyer for Goffer declined to comment on the charges Thursday. Before he worked at Galleon, Goffer worked at hedge fund Schottenfeld Group. He later co-founded his own firm, Incremental Capital; both are based in New York.[21]
The charges are related to the case against Galleon Group of New York, a now-defunct hedge fund.[14]
Prosecutors and the FBI have announced that they have filed charges against several people involved with the Galleon Group hedge fund, including founder Raj Rajaratnam. Galleon is a major hedge hund player known for its investment in technology stocks. This is much more than a standard SEC civil charge.[22] The actions raise to 20 the number of people who have been charged in the case disclosed last month with the arrests of Galleon Group founder and hedge fund operator Raj Rajaratnam and five others.[15] Galleon founder Raj Rajaratnam and five others were charged last month in what prosecutors said was the largest hedge fund insider-trading ring ever prosecuted.[11] Last month, the agency charged the billionaire Raj Rajaratnam, founder of the Galleon hedge fund firm, in connection with the probe.[23] The FBI sweep was linked to the ongoing probe into alleged insider trading by Raj Rajaratnam, the billionaire Sri Lankan founder of the hedge fund Galleon Management LP.[1]
Goffer was charged with conspiracy and securities fraud. Investigators described his connections in the financial world as "tentacles" that connect to Galleon Group founder Raj Rajaranam, who was charged with insider trading last month. The insider trading probe, which led to Goffer's arrest Thursday, has expanded to implicate 14 people that the government claims are related to the earlier Galleon case because inside information they used allegedly came from the same original tipster.[21] Thursday, 14 people were charged with conspiracy and fraud; however, it has not been confirmed that the recent sweep is related to the $20 billion insider trading case involving Galleon Group.[24]
NEW YORK -- Two attorneys and Wall Street professionals were among 14 people charged Thursday in a widening $53 million insider trading case that has snared one of America's richest men and shown white collar suspects to be using the coverup tactics of drug dealers.[25] NEW YORK - A Larchmont businessman was among 14 people charged in an ongoing federal probe into insider trading on Wall Street.[2] NEW YORK — Law enforcement officials in New York announced charges against 14 people in a widening probe into the largest ever alleged hedge-fund insider trading scheme on Wall Street.[1] Preet Bharara, announces charges against 14 individuals accused of insider trading, during a press conference in New York, 05 Nov 2009U.S. Attorney Preet Bharara said it was awakeup call for Wall Street.[26]
Demarest, the FBI deputy head for New York, described insider trading as "betting on a game when you already know the outcome." He warned would-be Wall Street cheats that the FBI net was closing.[1]
The insider trading case that rocked Wall Street last month grew even larger today, drawing in more Massachusetts companies and a hedge fund manager with a home in Westwood.[13] The arrests are the latest in an ongoing probe into insider trading by hedge funds on Wall Street.[5]
Authorities connected hedge fund manager Fortuna of Westwood to the Akamai insider trading that helped bring down Galleon. Fortuna, cofounder of S2 Capital LLC in Boston, said that he received inside information on Akamai from Danielle Chiesi, a hedge fund investor who was arrested last month.[14] In the case of Lee, the alleged wrongful conduct dates back as far as 1994. In both cases, this would suggest the men engaged in insider trading while working at other hedge funds before setting up their own fund, Spherix Capital, in 2007.[17]
The hedge fund founder and his codefendants were arrested as part of a crackdown on insider trading that authorities began two years ago using data-mining techniques and court-approved wiretaps.[11]
The charged defendants include hedge fund managers and trading firm executives, lawyers and corporate insiders.[10] The Justice Department has charged 14 more people in the insider-trading case that led to the closure of Galleon Capital and embarrassment at some of America'''s most prominent companies. Seven of those defendants had been taken into custody in the New York area this morning. Lawyers, a former Moody's analyst, an executive at Atheros Communications, and the founder of trading firm Incremental Capital were among those charged.[4] The other defendants include Arthur Cutillo, an attorney at law firm Ropes & Gray LLP; New York attorney Jason Goldfarb; Craig Drimal, who worked in Galleon's offices but wasn't an employee; Emanuel Goffer, who worked at trading firm Spectrum Trading LLC and is associated with Incremental Capital; David Plate, a former Schottenfeld employee associated with Incremental; and Michael Kimelman, another Incremental associate.[15]
U.S. attorneys said that in the 3Com case, the inside information came from a New York attorney employed by the prominent Boston law firm Ropes & Gray. The attorney allegedly got the information while acting as an advisor to Boston investment firm Bain Capital LLC during its 2007 acquisition of 3Com.[13] U.S. attorneys in New York today announced the arrests of nine suspects in the case on charges that include trading on inside information about Bain's plan to acquire 3Com, and the purchase that same year of Kronos by the equity firm of Hellmann & Friedman.[13]
U.S. Attorney Preet Bharara has scheduled a press conference for noon Thursday in New York to announce the filing of the new charges against individuals including attorneys and "Wall Street professionals." It is known that Zvi Goffer, Arthur Cutillo, Jason Goldfarb, Emanuel Goffer, David Plate and Michael Kimelman have been charged.[24] The FBI and SEC allege prepaid cell phones were used to shield conversations from authorities. Other parts of the 24-page complaint against Goffer, some of which were mentioned by U.S. Attorney Preet Bharara and SEC Director of Enforcement Robert Khuzami in a press conference Thursday, said Goffer bit cell phone SIM cards in half in order to destroy traces of the calls. The government amended its Galleon complaint against Rajaratnam to include Goffer and some of the others charged Thursday as defendants.[21] U.S. Attorney Preet Bharara said, "Over the last three weeks, we have charged 20 defendants with more than $40 million worth of alleged insider trading, and our investigation is ongoing.[10] The defendants collectively are charged with allegedly participating in insider trading schemes that generated more than $20 million in illegal profits.[10]
Five other defendants had already been charged and have pleaded guilty in federal court in New York to insider trading crimes.[1] Five of the charged defendants previously pleaded guilty to insider trading charges in Manhattan federal court.[10]
Last month, Raj Rajaratnam, founder of hedge-fund firm Galleon Group, and five others were charged criminally with insider trading.[5] Choo Beng Lee, who is cooperating with authorities, has pleaded guilty to insider-trading charges in the case that has ensnared Galleon Group founder Raj Rajaratnam and 19 others.'' According to his cooperation agreement, Lee acknowledged that his illicit trading has been going on since 1994, including while he was working at SAC, Reuters reports.[27]
Lee left SAC in 2004. Ali Far, the former Galleon analyst who founded Spherix Capital in 2007 along with Lee, has also pleaded guilty as part of his cooperation agreement. It was the closing of Spherix, which had enjoyed a good deal of success, earlier this year that led Rajaratnam and Danielle Chiesi, a former consultant to hedge fund New Castle Partners, to suspect that the two men were cooperating in the investigation. Rajaratnam had been an investor in their fund.[27] Lee has pleaded guilty in the Galleon scandal. The government went public with a noontime press conference to announce it had arrested 14 people, half of them associated with the hedge fund industry, as a result of the scandal.[18]
The complaint released Thursday named two additional cooperating witnesses in the government's insider-trading case against Galleon's Raj Rajaratnam (pictured), Steven Fortuna, of Boston hedge fund S2, and Gautham Shankar, a proprietary trader at Shottenfeld. This duo joins three others Roomy Khan, Ali Far and Richard Choo-Beng Lee who've been previously identified as cooperating witnesses in the case.[28] Ali Hariri, a vice president of Atheros Communications Inc. in Santa Clara was also charged with giving inside information to an unidentified hedge fund manager in California. He became the third corporate executive charged in the Galleon Group insider-trading case, joining IBM Corp.' s Robert Moffat and Intel Corp.' s Rajiv Goel.[15] For all the talk about disposable cellphones, bags of cash being delivered to tipsters and people with nicknames like Octopussy and the Greek, nearly all of the 20 defendants in this case appear to be nothing more than typical low-level Wall Streeters working at dime-a-dozen day-trading shops. Even as prosecutors boast that this investigation is shining a bright light on some of the hedge fund world's most tawdry practices, federal authorities still have not charged anyone of real stature outside of Rajaratnam. It's clear, however, that prosecutors would like to do exactly that, which is why this investigation is far from over. It's also why hedge fund managers and their investors have reason to worry about where the next shoe may drop.[8] Besides hedge fund managers, lawyers and corporate insiders, the newly charged persons included former employee of Moody's Investor Service Deep Shah who has been charged with conspiracy and securities fraud, the FBI said in a statement.[12] Robert Khuzami, head of enforcement at the U.S. Securities and Exchange Commission, spoke on Friday, a day after the SEC, the Department of Justice and the FBI announced dozens of new charges in what was already the biggest hedge fund insider-trading scandal ever.[23]
Two years ago, hedge fund managers were acclaimed as financial whizzes, envied and even grudgingly respected for raking in gobs of money with daredevil investment strategies. Now the hedge fund industry, facing public scorn in the wake of the financial crisis and still reeling from steep investment losses last year, is at the center of the biggest insider-trading scandal in a generation, pitted against prosecutors who are moving aggressively to stamp out what they fear is widespread abuse of confidential information on Wall Street.[20] The scandal expanded Thursday as federal prosecutors filed criminal charges against 14 people, bringing the number charged in the continuing probe to 20. The criminal complaint and a companion civil lawsuit filed Thursday depict an insider-trading network brazenly swapping information about planned corporate mergers and taking such elaborate steps to avoid detection that authorities likened the methods to those used by narcotics traffickers. To build their case, authorities used informants, wiretaps and a stakeout on a Manhattan street corner, the court filings show.[20] Two tactics prosecutors routinely use in drug cases -- confidential informants and court-authorized wiretaps of phones -- were used in the insider trading probe on a scale wider than ever before. The complaints also described FBI agents trailing suspects as they do in drug cases to spot them passing money between one another.[25]
NEW YORK (Reuters) - A top U.S. securities regulator said some funds may now view insider trading as a central tenet of their business models, rather than as a one-time opportunity for big rewards as sometimes happened in the 1980s.[23] NEW YORK -(Dow Jones)- A new player has emerged in the biggest hedge-fund insider trading case on record: "the Octopussy."[21]
Far may also prove a pivotal prosecution witness in building the case against Rajaratnam. Court filings suggest Far, a one-time top lieutenant to Rajaratnam, may have engaged in insider trading as far back as 2003 -- a time he was still a tech portfolio manager for Galleon.[8] The SEC presented publicly a flow chart detailing the alleged insider trading ring but didn't directly say Goffer's and Galleon's trades were conducted in unison. Rajaratnam's attorneys have denied the allegations against him.[21]
According to this article, fourteen more people have been charged in that Galleon insider trading scandal. That brings the number of people charged up to twenty with law enforcement saying more arrests are coming.[29] How big is this going to get? Nine more people have been arrested in the insider trading scandal involving Galleon.[9]
U.S. authorities have filed criminal charges against 14 peopleallegedly involved in a widening insider trading scandal that hasalready snared one of the richest men in America.[26] The cooperators have pleaded guilty to charges including conspiracy and insider trading and are cooperating in the hope of getting lighter penalties, investigators say.[28] The government announced that Steven Fortuna of Westwood, former managing director of S2 Capital LLC in Boston, has pleaded guilty to insider trading involving shares of Akamai Technologies Inc. of Cambridge.[13]
Steven Fortuna, a hedge fund manager with a home in Westwood, pleaded guilty in Manhattan federal court to illegally trading shares of Akamai Technologies Inc. of Cambridge.[14] Investigators have been examining trading involving Galleon Group and a variety of hedge funds. The SEC says it has uncovered $53 million of illegal profits through its investigation.[23] According to Lee's plea agreement, the U.S. attorney's office has agreed not to prosecute Lee for inside trading from "about 1999 to in or about 2004 in connection with Mr. Lee's employment with a certain hedge fund located in Connecticut."[28] The defendants behaved like "common criminals" who took a "page from drug-dealer handbooks," Manhattan U.S. Attorney Preet Bharara said Thursday. The probe is focused on hedge funds and their sources of information, he said, adding that more arrests may be coming.[15]
The WSJ's Susan Pulliam has a story today on the five informants who played so vital a role. According to Pulliam, some of the informants received information from investors and companies that haven't been charged in the probe, while three of the cooperating witnesses have a common link they all worked at the same New York hedge fund and then went off to launch their own funds.[28] Reporting from New York - As an eavesdropping-detection specialist, Kevin D. Murray normally works for companies concerned about possible spying by competitors. Since a blockbuster insider-trading prosecution built on wiretaps and microphone-wearing informants became public last month, frantic hedge fund managers have raced to hire him. "The nature of the question is 'Can you tell me if the government's bugging me?' " Murray said, adding that he turned down the three firms that approached him.[20]
The individuals are hedge fund consultant and former Intel employee Roomy Khan; Ali Far, founder of hedge fund firm Spherix Capital; Richard Choo-Beng Lee, former president of Spherix; Gautham Shankar, a former proprietary trader at Schottenfeld Group; and Steven Fortuna, co-founder and principal of hedge fund firm S2 Capital Management in Boston. Bloomberg News and the Associated Press contributed to this report.[15] Among the other hedge funds Lee has agreed to provide information on is SAC Capital in Connecticut, according to a person close to the situation.[28] The insider-trading scandal that has engulfed several hedge funds is getting perilously close to one of the biggest names in the hedge fund industry: SAC Capital Advisors.[27] Speaking more generally, Khuzami said that in recent years, more people who have set up hedge funds, a largely unregulated industry, may have done so after working at firms that lacked strong compliance oversight, or after leaving firms that did. He also distinguished the current environment from the 1980s, in that some people may now be more likely to trade on advance knowledge of routine corporate information, such as earnings forecasts, rather than wait for more dramatic events such as mergers. "A lot of insider-trading cases in the past tended to be more opportunistic: you had a particular announcement and someone with access to information and they traded on that," he said.[23] According to court documents filed by prosecutors, there are several parties, ranging from additional hedge funds to technology companies to people working halfway around the world that have acted as co-conspirators in the alleged insider-trading case. Those implicated so far.[30]
Coffee said what would be most interesting to see as the case unfolds is whether the insider-trading network touched other high-profile companies or hedge funds.[4]
FBI Assistant Director Joseph M. Demarest Jr. stated, "Insider trading provides an illegal competitive edge over honest players in the hedge fund business.[10] The cooperation agreement did not name Cohen, a hedge fund billionaire, or SAC as taking part in illegal trading.[18]
The hedge fund referenced in the plea agreement is SAC Capital, according to a person close to the situation.[28]
Rajaratnam is free on $100-million bail. His request to have the bail reduced to $25 million was denied Thursday by a federal judge. The federal probe -- especially its use of electronic surveillance -- has rattled the hedge fund industry.[20] Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe.[10] Still want more? Browse the hedge fund blogs, authored by hedge fund industry experts.[10]
The U.S. Department of Justice said that hedge fund managers used inside information to illegally trade shares of Marlborough network technology company 3Com Corp. and Kronos Inc. of Chelmsford, a maker of workforce management software.[13] Amacher, as I previously reported (http://r.reuters.com/qyd38f ), set up similar partnerships for several other hedge fund managers, including a tech analyst who later went to work for Far's now-defunct Spherix, and a portfolio manager with Fir Tree Partners. Now there's no indication prosecutors are looking into any of those partnerships, or the hedge fund managers behind them. In this environment, when prosecutors are leaving no stone unturned to catch a big hedge fund fish, nothing may be beyond their purview.[8]
Messrs. Lee and Far left Stratix at the end of 2007 to form their own hedge fund, Spherix, in March 2008. That fund closed in March, around the time Lee and Far began cooperating with the government, people close to the situation say. Fortuna also worked at Stratix for one year before forming a hedge fund, named S2, which shut down earlier this year as well, people close to the situation say.[28] From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.[10]
"Here, at least with respect to some of the funds, you see a much more systemic, concerted effort to cultivate sources of information within issuers and elsewhere as. more of a business model approach, as a regular way of doing business." That, he said, could herald more problems. "I can't predict or tell you how widespread the conduct is," he said. "I can only tell you that the change in market structure represented by the rise of hedge funds, particularly operating in an unregulated sphere, and markets that are less transparent represent warning signs that this kind of misconduct may occur more frequently. That is why we are focused on those areas."[23] No one at the Stamford, Conn. -based hedge fund, nor SAC itself, have been accused of any wrongdoing.[27]
At the center of the web was Zvi Goffer, a trader who worked at the New York brokerage Schottenfeld Group during 2007, when some of the transactions were made. He later worked at Galleon, leaving in August 2008 to found his own company, Incremental Capital. According to the SEC complaint, Goffer was known to his alleged coconspirators as "the Octopussy,'' because he had so many channels of illicit information. [14] "Knock on our door before we come knocking on yours." Goffer, who also worked at Galleon and started a trading firm called Incremental Capital last year, was known as Octopussy within the insider-trading ring because of his reputation for having arms in so many sources of inside information, according to the Securities and Exchange Commission.[15]
The names of the other individuals have not been released. According to today's court filings, some of the defendants traded on inside information related to Bain Capital LLC's proposed buyout of 3Com Corp. Cutillo, an attorney who worked at Ropes & Gray LLP, allegedly stole information from his law firm and leaked inside information to Goldfarb, according to the FBI. Investigators said they tapped Drimal's cell phone.[24] According to the complaints, Goffer and another defendant, Craig Drimal, paid money for inside information, primarily from Arthur Cutillo, an attorney at Boston-based law firm Ropes & Gray, which worked on several mergers.[20]
Rick Schottenfeld, founder of Schottenfeld Group, said the employees named hadn't worked at the company for nearly two years, and the company is cooperating with the investigation. In November 2007, the FBI complaint says, it's believed that Goffer delivered cash in a white bag to Jason Goldfarb, a lawyer and co-defendant accused of providing inside information about a buyout of Axcan Pharma Inc. Goffer allegedly traded on that tip, the complaint said.[21] FBI agents tailed Goffer and witnessed transactions that the Justice Department asserted were deliveries of cash payoffs for inside information. Goffer was exceedingly cautious, buying prepaid cellphones for his alleged coconspirators to make it more difficult for investigators to intercept their calls, the complaint said. After the announcement of the 3Com acquisition, the complaint said, Goffer bit into the memory card in his tipster's disposable cellphone, broke the phone in two, and threw one half away. He then instructed the insider to get rid of the rest of the phone. The complaint said that Cutillo, the Ropes & Gray lawyer, was a legal adviser to Bain Capital during its 2007 attempt to acquire 3Com, a maker of computer networking equipment.[14]
Authorities staked out a meeting on an Upper East Side street corner at which Drimal gave an envelope stuffed with cash to Goffer, who subsequently passed money to Jason Goldfarb, another lawyer charged in the case, the filings say. Goffer and Goldfarb worried about getting caught if their profits seemed to come too easily, according to the complaints.[20] Ruiz is not charged but is linked to the Galleon case in a U.S. attorney's complaint.[29]
The U.S. Attorney said communication andtraining amongst the defendants was carried out using throw-away phonesand techniques employed by drug dealers. He described how one of thosearrested, Zvi Goffer, accused of operating of an insider trainingnetwork, disposed of his phone. "After the insider tradingwas complete, Goffer destroyed the disposable cell phone by removingthe SIM card, biting it, and breaking the phone in two," he said. "Hethrew away half the phone and gave the other half to his tippee tothrow away."[26] U.S. Attorney Preet Bharara said yesterday the defendants borrowed a "page from the drug dealer's playbook" by using anonymous hard-to-trace prepaid cell phones to dodge detection by law enforcement. He said they also discussed falsifying company files to make it appear trades weren't based on secrets.[3]
"Some of the defendants -- taking a page from the drug dealer's playbook -- deliberately used anonymous, hard-to-trace, prepaid cellphones in order to avoid detection," U.S. Attorney Preet Bharara told a news conference on Thursday.[16] At the time, U.S. Attorney Preet Bharara called the first arrests "a wake-up call for Wall Street." "Today the alarm bells have only grown louder," he said at a news conference Thursday.[25] Manhattan U.S. Attorney Preet Bharara was to announce the filing of the new charges against individuals including attorneys and '''Wall Street professionals''' later yesterday.[11]
Three weeks ago, Mark Kurland, 60, of Mount Kisco, a former head of an investment company called New Castle Partners, was charged along with Rajaratnam, former IBM executive Robert Moffat and three others in the first leg of the case. At the time of those arrests, Bharara said the case was "a wake-up call for Wall Street." "Today the alarm bells have only grown louder," he said at a news conference Thursday. [2] Quadrum Capital's founder has received a subpoena in the case, according to the Wall Street Journal.[8] The Wall Street Journal's Law Blog covers the notable legal cases, trends and personalities of interest to the business community.[28]
The SEC, which regulates trading in securities, has filed civil charges in the cases. It is illegal to buy and sell stocks based on information unavailable to the public. [14] The drama reads not much different from "James Bond" films like the one that provided Goffer's moniker. The latest allegations in the case includes bags of cash, wiretapping, and witnesses worried about "rats" selling them out to all-too-eager feds. The case being built by the FBI and Securities and Exchange Commission alleges that a complicated web of informants used covert methods to disseminate and pay for insider stock tips.[21]
Bharara said total profits alleged by prosecutors were $40 million, while the Securities and Exchange Commission raised the total to $53 million, saying it includes millions in profits not described in the criminal complaints.[3] Illicit profits from the conduct alleged in the charges filed last month and Thursday total about $53 million, according to the SEC, which brought the civil charges. "It is absolutely stunning that such a massive criminal scheme was perpetrated by such elite members of the financial services industry," said Chris Bebel, a former federal prosecutor.[20]
The developments follow last month's federal criminal charges against Rajaratnam, the billionaire founder of Galleon.[15] The complaints filed Thursday came less than three weeks after the government brought charges against Galleon’s billionaire founder, Raj Rajaratnam, and five others. Rajaratnam was accused of conspiring with executives at major companies such as Intel Corp. and IBM Corp. to swap tips on mergers and other market-moving news.[20]
Besides Tamil-origin billionaire Raj Rajaratnam, the founder of Galleon Group, the two Indian Americans identified as Anil Kumar and Rajiv Goel (both 51) were arrested last month for allegedly committing the fraud.[12]
Galleon's cofounder, billionaire Raj Rajaratnam, was one of six people arrested and charged last month in connection with making $25 million from illegal trades in stocks of several companies, including Akamai.[14] Investigators said S2 used the knowledge to make illicit trades of Akamai stock, which netted the fund a profit of about $2.4 million. In describing his client's guilty plea, Fortuna's attorney Richard Schaeffer said, "He has accepted responsibility for his conduct.''[14] For a few days before the acquisition, Zvi Goffer purchased 56,100 shares of Hilton stock and 512 call options, eventually resulting in a profit of about $354,612. The day before the acquisition, Emmanuel Goffer bought an unknown number of shares, but eventually sold all of his holdings for more than $1.67 million.[31] FBI investigators say that's the nickname for Zvi Goffer, a hedge-fund manager who emerged Thursday as a key player in an alleged insider-trading scheme that authorities say pilfered about $40 million in ill-gotten gains.[21]
According to the SEC complaint, Goffer and his alleged coconspirators made about $11 million by trading on Cutillo's information.[14]
The complaint said Deep Shah, a former analyst at Moody's Investors Service in New York, learned about the deal from an unnamed source. He shared the information with Roomy Khan, who made stock trades based on the information, shared the information with other traders, and paid kickbacks to Shah.[14] Cutillo allegedly shared inside information about the 3Com acquisition and deals involving other clients with another New York lawyer named Jason Goldfarb.[14]
The Sri Lanka native also faces criminal charges. "We are already seeing a significant expansion as to where this investigation is leading," Khuzami told reporters on Friday at a Practising Law Institute securities conference in New York. He declined to say whether others might be implicated.[23] Charges against the men included conspiracy and fraud, according to documents filed in New York federal court.[11]
NEW YORK Fourteen more people have been criminally charged in a growing insider-trading scheme, but evidence exists of a number of additional players who haven't yet been publicly identified.[30]
SAN FRANCISCO, Nov 5 (Reuters) - Federal prosecutors have arrested nine more people in the Galleon Group insider-trading scandal.[31] Prosecutors working on the Galleon Group case warned after the first round of arrests that more were coming. This wasn't an exaggeration.[24]
How did the government investigators and lawyers manage to put together this fast-moving Galleon Group insider-trading case? We know they played heavies, what with their liberal use of FBI agents and wiretaps.[28] Quadrum, which shut down before the Galleon case broke, recently retained Kevin Harnish, a lawyer who specializes in securities enforcement cases.[8]
Fortuna, Khan, and three others pleaded guilty to securities law violations and are awaiting sentencing. "These defendants thought the rules that apply to all investors did not apply to them, but the one rule they cannot avoid is the rule of law,'' Robert Khuzami, director of the enforcement division of the U.S. Securities and Exchange Commission, said in a statement.[14] Five of the 14 new defendants pleaded guilty Thursday, including Roomy Khan, considered to be a key government witness in the case against Rajaratnam.[20]
Lee pleaded guilty to one count apiece of securities fraud and conspiracy to commit securities fraud.[27] Three other employees from Incremental were also arrested by the FBI and charged with conspiracy and securities fraud. A person answering the phone at Incremental said the company had "no comment at this time."[21] Rajaratnam was charged with four counts of conspiracy and eight counts of securities fraud. He was arrested in his apartment last night.[22]
Investigators said Rajaratnam and the five others, charged on October 16, made illegal stock trades gathered over more than three years. [11]
Deep Shah, a former employee at Moody's Investors Service, was also charged with insider trading. He remains at large.[15] The cooperation agreements, released on Thursday by federal prosecutors, say Far has admitted engaging in insider trading as far back as 2003.[17]
Goffer operated an insider-trading network to gather private information about pending acquisitions of companies including 3Com Corp., Avaya Inc., Axcan Pharma, Hilton Hotels and Kronos Worldwide Inc., federal prosecutors allege. He allegedly traded on the inside information, passing it along to others so they could trade. Prosecutors also claim Goffer probably paid sources for the information and gave them prepaid cell phones to try to avoid getting caught.[15] The criminal complaint said evidence had been gathered using telephone wiretaps and informants. It also said Goffer issued participants in the alleged ring with prepaid cell phones meant to make detection of the scheme harder.[1] Goffer and Plate eventually decided the person in question wasn't a "rat," according to the complaint. That person wound up being a cooperating witness, the complaint said. In early 2008, Goffer is recorded as having asked Plate to call him on his " bat phone," which the FBI alleges is code for a prepaid cell phone.[21]
In a separate complaint filed yesterday, authorities described a spate of illegal trading tied to the March 2007 acquisition of software firm Kronos by private investment firm Hellman & Friedman. [14] Workforce management services company Kronos Inc said in March 2007 that it agreed to sell itself to Hellman & Friedman. Kronos said its shareholders were set to receive $55 in cash for each share of the company's stock, "representing a 34.4 percent premium over Kronos' closing share price from 20 trading days ago."[31] David Plate made about $100,000 in two separate trading accounts. When Hilton Hotels Corp ( HLNQ.PK ) agreed to sell itself to Blackstone Group LP ( BX.N ), the companies said that Blackstone would acquire all outstanding stock of Hilton stock for 40 percent more that its previous day's closing price.[31]
TPG Capital also agreed in November 2007 to buy drug maker Axcan Pharma Inc. The purchase price of $23.35 was 28 percent over the average trading price of the company's stock the day before the announcement.[31]
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. [16]
Prosecutors and the FBI declined to comment on any connections between the arrest of Rajaratnam, a billionaire, and the new charges.[11] Federal authoritiesfiled fraud and conspiracy charges against lawyers and investment fundmanagers and others accused of illegally profiting from the use ofinside information.[26]
Kimelman, a founder of Incremental Capital, is the second Westchester executive charged in the case. [2] Today's action was a jointeffort of the U.S. Attorney's office, the FBI and the Securities andExchange Commission.[26]
SOURCES
1. AFP: 14 charged in Wall St insider trading probe
2. Larchmont businessman charged with insider trading | LoHud.com | The Journal News
3. Jersey lawyer charged in insider trading case | New Jersey Business - - NJ.com
4. Galleon Insider Trading Case Grows With Arrests - Daily Brief - Portfolio.com
5. UPDATE: List Of Individuals Linked With Insider-Trading Probe - WSJ.com
6. CORRECT:Insider-Trading Probe To Have Lasting Effects -SEC's Khuzami - WSJ.com
7. FT.com / UK - 14 charged with inside trading on Wall St
8. COLUMN-Still on the hunt for a big hedgie: Matthew Goldstein - Forbes.com
9. Galleon scandal expands - FierceFinance
10. » Manhattan Attorney Charges 14 With Over $20 Million in Hedge Fund Insider Trading » Hedge Fund News From HedgeCo.Net Hedge Fund News
11. BusinessDay - US prosecutors charge 14 over 20m insider trading scheme
12. 14 charged in Wall Street insider-trading probe- International Business-News-The Economic Times
13. Insider trading case draws in more Mass. companies - Daily Business Update - The Boston Globe
14. Net widens in Galleon investigation - The Boston Globe
15. More arrests in insider-trading scandal
16. UPDATE 6-US insider trading probe widens, ensnares 14 more | Reuters
17. UPDATE 1-Trader pleading guilty also worked at SAC Capital | Reuters
18. HedgeFund.net: Public news from HedgeNews
19. emii.com: DoJ Charges 14 In Insider Trading Probe
20. Hedge fund insider-trading scandal expands -- latimes.com
21. CORRECT: New Key Figure Emerges In Galleon Insider Trading Probe
22. Raj Rajaratnam, Founder of $3 Billion Galleon Group Hedge Fund, Arrested | Ethiopian News - EthioPlanet.com, Ethiopian Politics, Entertainment, Ethiopia
23. SEC sees evolution in insider trading | Reuters
24. Fourteen more nabbed for conspiracy, fraud (Dealscape - Scandal)
25. Insider trading case widens - Winnipeg Free Press
26. 14 Charged In Insider Trading Case
27. Galleon Informant Traded Illegally While At SAC | FINalternatives
28. The Real Keys to the Galleon Case? - Law Blog - WSJ
29. [H]ard|OCP - 14 More Charged with Insider Trading
30. Unidentified Players Remain In Insider-Trading Case - WSJ.com
31. FACTBOX-More arrests in Galleon insider-trading case | Markets | Markets News | Reuters
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