Schottenfeld Draws Scrutiny After Goffer Arrest in Insider Case

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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...)
The cooperators include Roomy Khan, a key witness in last month's charges against Rajaratnam, along with current or former hedge fund managers in Massachusetts and California. (More...)
According to the SEC complaint, Goffer and his alleged coconspirators made about $11 million by trading on Cutillo's information. (More...)
The complaints also named five cooperating witnesses traders and company insiders who have pleaded guilty to involvement in the alleged insider-trading schemes in hopes of receiving leniency. (More...)
One person was arrested in New Jersey and one person was arrested in Connecticut. (More...)
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. (More...)
Emanuel Goffer of New York, N.Y. - formerly a registered representative at the broker-dealer Spectrum Trading LLC, and currently associated with the broker-dealer Echotrade. (More...)
According to a copy stored on the Internet search site Google, Cutillo holds bachelor's and master's degrees in chemical engineering as well as a law degree from Villanova University. (More...)
Bail set for the other defendants ranged from $100,000 to $500,000. (More...)
The complaints filed Thursday came less than three weeks after the government brought charges against Galleon’s billionaire founder, Raj Rajaratnam, and five others. (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...)
Three other employees from Incremental were also arrested by the FBI and charged with conspiracy and securities fraud. (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] 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.[2] Arthur Cutillo has been arrested as part of the investigation into the Galleon Group insider trading investigation. The basic allegation is that Raj Rajnaratnam, the founder and CEO of Galleon Group, was maintaining its incestment edge by trading off inside information. Inside information which was fed to him by a more or less widespread group across the investment industry. Among those charged on Thursday were 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 associated with Incremental Capital.[3]

Galleon's founder, Raj Rajaratnam, was arrested on separate insider trading charges last month. Prosecutors say the second Galleon ring netted at least $20 million from its scheme. "The U.S. Securities and Exchange Commission and Department of Justice are continuing their attack on gatekeepers of corporate secrets--such as accountants, auditors and attorneys--so this is not unexpected," says New York white-collar defense attorney John Carney, a former federal securities fraud prosecutor. Court papers filed by the feds this morning allege that Arthur Cutillo, an intellectual property associate in the New York office of white-shoe law firm Ropes & Gray, was a paid source of insider information for Zvi Goffer, a former Galleon employee. Cutillo is alleged to have tipped off his insider trading ring in advance of the following deals in which Ropes & Gray served as legal adviser: Silver Lake Partners and TPG Capital's $8.2 billion acquisition of telecom company Avaya in June 2007, which resulted in a 28% windfall for Avaya shareholders above the price its shares were trading at just prior to the deal's announcement; Bain Capital's September 2007, $2.2 billion buyout of computer network manufacturer 3Com, whose shareholders received a 44% premium; and the $1.3 billion acquisition of Axcan Pharma spearheaded in November 2007 by TPG, creating a 28% boost on Axcan shares.[4] 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.[5] 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.[6]

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.[7] 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.[8]

Washington, D.C. - infoZine - The SEC alleges that Arthur J. Cutillo, an attorney in the New York office of international law firm Ropes & Gray LLP, had access to confidential information about at least four major proposed corporate transactions in which his firm's clients participated. Through his friend and fellow attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer, a proprietary trader at New York-based firm Schottenfeld Group. Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm's proprietary accounts. Goffer was known as "the Octopussy" within the insider trading ring due to his reputation for having his arms in so many sources of inside information.[9] Cutillo and Goldfarb were charged as part of the insider trading network allegedly headed by Zvi Goffer, 32, a broker-dealer formerly with The Schottenfeld Group and now with Incremental Capital in New York. Mr. Goffer is purportedly known among his ring as "Octopussy" because he had his arms in so many companies with inside information.[10] Goffer was charged in the broadest of the new federal court complaints. He was identified as a former employee of both Galleon and New York broker-dealer Schottenfeld Group who went on to start his own trading firm, Incremental Capital. The complaint quotes a taped February 2008 conversation in which Goffer allegedly told Michael Kimelman, then an employee at Lighthouse Financial Group who is also charged in the case, that he was careful to gather Wall Street analyst reports on companies in which he planned to make large stock trades. (Another complaint says Kimelman is currently employed at Incremental Capital.) "If we're going to make a big trade and make a big bet. it's always good to have on file why you did it," the complaint quoted Goffer as saying. FBI Special Agent David Makol alleged in the complaint that Goffer appeared to suggest he collected the reports as a cover so he could later claim the trades weren't based on inside information.[11]

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.[8] 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.[12]

Here'''s the latest, from our colleagues at the Wall Street Journal, who make much of the James Bond element. The PE connection mostly relates to Arthur Cutillo, a lawyer at Ropes & Gray, who allegedly passed on information to Zvi Goffer, the "Octopussy" of this particular ring. According to the SEC and the Justice Department, Cutillo, together with a lawyer friend of his, Jason Goldfarb, conveyed information related to Avaya's acquisition by Silver Lake and TPG Capital; Alliance Data Systems' planned purchase by the Blackstone Group; Axcan Pharma's purchase by TPG LP; and a failed bid by Bain Capital Partners LLC for 3Com Corp. Also mentioned in the same case is Kronos Inc. - bought by Hellman & Friedman LLC. It is unclear where the individual who conveyed the Kronos information to Goffer worked; the individual is referred to in the Justice Department complaint as CC-1. The involvement of lawyers in this ring is particularly unusual, as Bloomberg points out, quoting a legal professor who says, "That's the ultimate betrayal of trust."[13] NEW YORK - Zvi Goffer, a Manhattan stock trader, was careful when he talked to a secret source who illegally tipped him off in 2007 about Bain Capital's soon-to-be announced acquisition of 3Com (COMS), federal investigators charge. Careful that he gave the tipster a disposable cellphone to discuss the deal even as he bought thousands of 3Com shares. It had two numbers programmed into it, labeled "You" and "Me." Wary, that after the announcement of the deal which investigators charge netted Goffer $378,608 in illegal profits he allegedly removed the phone's subscriber identity module (SIM) card, bit into it, then broke the phone in half. Leery of being detected, that he allegedly threw half the phone away, and instructed the tipster to get rid of the other half. Such a counter-surveillance technique, more expected among drug dealers than Wall Street traders, wasn't unusual for Goffer, the investigators said. Co-conspirators allegedly referred to him as "The Octopussy," a character in a James Bond movie, based on his reputation for having his arms out to multiple sources of inside information.[11]

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] 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.[15] As a case in point, two of the 14 defendants arrested in the government's latest Galleon Group-related insider trading bust are New York lawyers who allegedly accepted cash to funnel information on three 2007 corporate acquisitions to a one-time employee of the hedge fund.[4] NEW YORK (Reuters) - The new defendants in the widening Galleon insider trading probe include a lawyer from the firm of Ropes & Gray as well as people formerly with Incremental Capital, a hedge fund, a government source said on Thursday.[16] 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.[17] 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] Cutillo and Goldfarb were named in one of several charging documents revealed yesterday by Southern District U.S. Attorney Preet Bharara. They are part of the second wave of a scandal that broke three weeks ago with the arrest of Raj Rajaratnam, head of the hedge fund Galleon Management, and five others. All told, Mr. Bharara announced eight criminal complaints and the arrests of 14 people, which brings the total of those arrested in the insider trading scandals to 20. "When we announced our first arrests three weeks ago, I said this case should be a wake up call for Wall Street," Mr. Bharara said at a press conference.[10] 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.[18]

Rajaratnam defense attorney John Dowd criticized the government's case at the court hearing, saying it was "not as overwhelming as the government would like to believe." In detailing the new allegations, federal prosecutors and securities regulators outlined sometimes overlapping schemes involving hedge fund traders, Wall Street brokers, attorneys, a former analyst at the Moody's credit rating agency and corporate insiders at public firms such as Intel and IBM. The suspects, some of whom allegedly discussed illegal tips in cars in efforts to avoid getting caught, allegedly doled out or traded on secret information about firms such as Hilton Hotels, Akamai Technologies, Axcan Pharma and Atheros Communications before the information was publicly disclosed. "It would be a mistake to think that this investigation is focused only or even principally on hedge funds.[11]

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.[19] 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.[20] NEW YORK - A Larchmont businessman was among 14 people charged in an ongoing federal probe into insider trading on Wall Street.[5] 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.[21]

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.[22]

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.[23] 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.[24] 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] Charged in the Goffer ring were Craig Drimal, 53, of Weston, Conn., who worked at the offices of Galleon but was not employed by them; Emanuel Goffer of New York City, formerly of Spectrum Trading and now associated with Incremental in New York; Michael Kimmelman, 38 of Larchmont, a trader and founding partner of Incremental Capital who previously worked as an associate at Sullivan & Cromwell; and David Plate, 34 of New York City, once with Spectrum and now with Incremental.[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.[7] 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.[25] STAFF WRITER 8:27 HRS IST Betwa Sharma New York, Nov 6 (PTI) The FBI has charged 14 people, out of which five have already pleaded guilty, in a case related to the USD 20 million hedge fund insider-trading scam, the largest ever such case in the U.S. 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.[26]

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."[27]

Two lawyers were among several people arrested Thursday in a rapidly expanding hedge fund insider trading scandal. Arthur J. Cutillo, 33, allegedly gave information about mergers and acquisitions he gleaned as an associate at Ropes & Gray to Jason Goldfarb, 31, an associate with the personal injury firm Brecher Fishman Pasternack Walsh Tilker & Ziegler.[10] The charges come nearly three weeks after Raj Rajaratnam, billionaire founder of hedge fund firm Galleon Group, and five others were arrested. "For a law firm to have this out there is very, very uncomfortable because there is this immediate sense that that's a major black eye," said an mergers and acquisition lawyer at a major law firm. "No law firm wants to see its name in the lights in this way." Ropes & Gray said it was deeply disappointed and that the allegations suggest "an extreme breach of this person's duty of trust to our clients and to the firm."[28]

Criminal charges in the new federal court complaints include securities fraud, conspiracy to commit securities fraud and obstruction of justice. The allegations broaden the insider-trading probe announced at last month's arrest of Galleon hedge funds group billionaire Raj Rajaratnam, ranked 559th this year in Forbes ' list of the world's richest people, and five other suspects. A Manhattan federal magistrate judge denied Rajaratnam's motion for a reduction in his $100 million bail at a court hearing Thursday, but agreed to loosen restrictions on his travel inside the U.S. He's now winding down his hedge funds.[11] In the aftermath of the a fresh series of arrests against individuals allegedly involved in a $20m insider trading ring, the SEC released details of an amended complaint on Thursday. Those featured in the complaint are a motley crew of'' hedgies, analysts, traders and attorneys, many of whom stand accused of participating in a scheme in which Raj Rajaratnam and his Galleon hedge fund figure prominently. The SEC has also broadened its inquiry beyond the scope of mere Galleon.[29] 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.[30] 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] In the related charges filed last month, Rajaratnam, whose hedge funds once managed an estimated $7 billion, was accused of conspiring with five co-defendants to reap illegal profits from insider trading in shares of Google, Hilton, Sun Microsystems and other publicly traded firms. Other suspects charged with Rajaratnam include Danielle Chiesi, 43, an employee of New Castle Partners, formerly the equity hedge fund group of Bear Stearns Asset Management, and Mark Kurland, 60, a New Castle executive.[11] According to federal prosecutors, Goffer was the boss of an insider trading operation that paid sources for non-public information. He and 13 others were charged on Thursday as the scandal centered on Goffer's former employer, hedge fund Galleon Group, widened dramatically.[31] 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.[18] 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.[5] 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.[24] 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.[22]

Read extensive coverage of the Galleon Group insider trading case over at our sister site, Dealbreaker. Cutillo is not the first Ropes & Gray IP lawyer to have a brush with the law this year. A Newburyport patent lawyer has resigned his right to practice law over accusations he billed his firm and clients more than $700,000 from a company he created himself, according to the state Board of Bar Overseers of the Supreme Judicial Court. The Board of Bar Overseers, which has the authority to regulate and discipline lawyers, accepted the resignation of Matthew P. Vincent, a former Georgetown selectman chairman who did not run for re-election this year.[32] Today, nine more people were arrested in the Galleon Group insider-trading scandal, including Arthur Cutillo, a former associate at the tony, Boston-based law firm. Ropes & Gray said in a statement that it was deeply disappointed to learn of the insider trading allegations, and the firm was moving quickly to protect its clients.[33]

Cutillo (of Ropes & Gray), Goldfarb, Goffer (Incremental), and Drimal (Galleon) are among insider trading arrests added today to the growing Galleon Group case first profiled on LALATE.[34]

NEW YORK, Nov 5 (Reuters) - A Ropes & Gray lawyer's arrest in an insider trading case has embarrassed the corporate law firm in the latest scandal to cast a harsh spotlight on legal partnerships that oversee billions of dollars in deals each year.[28] 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.[15] July 28, 2007: Bain Capital, represented by law firm Ropes & Gray, offers to buy 3Com. Aug. 6, 2007: Arthur Cutillo, attorney at Ropes & Gray, calls Jason Goldfarb, a friend who is also a New York attorney, and gives him non-public information about 3Com's pending sale.[11] Prosecutors said a New York attorney who worked for Boston law firm Ropes & Gray passed on inside information about Hub venture capital firm Bain Capital's planned buyout of 3Com Corp., a networking gear maker in Marlboro.[35]

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.[22] 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.[23] The statement said the suspects haven't been associated with Schottenfeld for nearly two years and stressed that the firm would "cooperate fully" with investigators. Others charged in the Goffer complaint include Arthur Cutillo, an attorney with the prestigious law firm of Ropes & Gray. He allegedly offered tips about the 3Com deal and other publicly traded companies involved in impending acquisitions that Ropes & Gray worked on as a legal adviser. Ropes & Gray said it was "deeply disappointed to learn about this situation, which suggests an extreme breach of this person's duty of trust to our clients and to the firm."[11]

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] Part of the complaint focuses on alleged insider information provided by Cutillo to another defendant about deals in which Ropes Gray was a legal advisor, including the acquisition of Axcan Pharma Inc. by TPG Capital in November 2007; Silver Lake and TPG's purchase of Avaya Inc. in June of that year, and Bain Capital Partners' acquisition of 3Com in September of that year.[36] More on our three honorees, after the jump. According to a complaint filed against seven of those charged, Cutillo is alleged to have provided inside information on three transactions on which Ropes advised private equity clients: TPG and Silver Lake's $8.2 billion acquisition of Avaya in June 2007, TPG's $1.3 billion acquisition of Axcan Pharma in November 2007, and Bain Capital's $2.2 billion acquisition of 3Com in September of that year. (Ropes is known for its strong private equity practice and has advised Bain and TPG on several high-profile deals, including a $17.9 billion buyout of radio giant Clear Channel and $28.1 billion sale of Alltel to Verizon last year.) Cutillo was on the recruiting committee an in-office interviewer at Ropes & Gray put your best foot forward for the applicants! You can read more about him over at Guanabee (which located Cutillo's complete bio on the R&G recruiting page).[32]

U.S. prosecutors alleged on Thursday that Arthur Cutillo, in Ropes & Gray's litigation department, gave out inside information about deals by the law firm's clients. These deals include buyouts by private equity firms like TPG, Bain Capital and Silver Lake, all of whom used Ropes & Gray as their counsel.[28]

The complaints allege that Zvi Goffer ran an insider trading network and paid sources for inside information. He provided his tipsters with prepaid cellphones so they could minimize the chances of getting caught when passing on tips, the complaint said. The minor interest in Arthur Cutillo is that his law firm, Ropes&Gray, seem to have grasped part of the art of damage limitation but not all of it. Searching their website for mentions of Cutillo gives you a 404 page. They haven't quite yet cleaned out their site search engine properly, for he's still listed in search results even if you cannot see that full result.[3] The third charged lawyer, Jason Goldfarb, apparently worked as a personal injury lawyer in Brooklyn. He allegedly served as a conduit of information between Cutillo and Zvi Goffer the former Galleon employee apparently referred to as “Octopussy” at the SEC, because "he had his arms in so many insider" trading schemes.[32] Prosecutors said that Mr. Goldfarb then passed the tips to the head of a ring who based trades on the information. Mr. Cutillo, of Ridgewood, N.J., and Mr. Goldfarb, of New York, were both charged with conspiracy to commit insider trading and securities fraud. Mr. Goldfarb and Mr. Cutillo made their initial appearances before Magistrate Judge Theodore H. Katz late yesterday.[10] Five other defendants had already been charged and have pleaded guilty in federal court in New York to insider trading crimes.[26] Five of the charged defendants previously pleaded guilty to insider trading charges in Manhattan federal court.[19]

Five hedge fund industry figures who previously were charged with insider trading pleaded guilty to the crimes, the U.S. attorney said.[8] 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.[8]

A money manager from Westwood has admitted to cashing in on a hot trading tip about Cambridge's Akamai Technologies, federal prosecutors said yesterday in announcing new charges in a widening securities-fraud scandal. Steven Fortuna, 47, netted 2.4 million in profits for his Boston-based hedge fund, S2 Capital, after getting inside information from an unnamed source at Akamai, according to court documents. "He pleaded guilty and accepted full responsibility for what he did," said Richard Schaeffer, Fortuna's New York-based attorney. "He is very sorry about it."[35]

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.[37] 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]

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] The scandal has rocked Wall Street since alleged ringleader Raj Rajaratnam, the billionaire founder of New York hedge fund Galleon Management, and others were arrested Oct. 16. Out on 100 million bail, Rajaratnam has said he is innocent.[35] The five cooperators are Steven Fortuna, 47, formerly a managing director of S2 Capital LLC in Boston; Ali Far, 38, the founder of the California-based hedge fund Spherix Capital LLC; former Spherix president Richard Choo-Beng Lee, 53, of San Jose, Calif.; Roomy Khan, 51, of Fort Lauderdale, Fla., a paid consultant who allegedly fed information to Galleon; and Gautham Shankar, 35 of New Canaan, Conn., a proprietary trader at Schottenfeld in New York.[10] Michael Kimelman is a founder and partner at Incremental Capital, LLC, a newly formed proprietary trading and hedge fund management firm in New York City.[32] Schottenfeld Group and Incremental Capital LLC have joined Galleon Group and New Castle Funds on the list of trading firms under scrutiny by a federal insider-trading investigation.[38] "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.[8]

A criminal complaint naming Goffer, head of the trading firm Incremental Capital, and his alleged accomplices reads like a script for TV dramas like "The Wire" or "The Sopranos," in which drug and Mafia criminals try to stay one step ahead of the law.[31]

The cooperators include Roomy Khan, a key witness in last month's charges against Rajaratnam, along with current or former hedge fund managers in Massachusetts and California. Khan allegedly used a personal brokerage account to trade securities on behalf of one co-conspirator in exchange for information about a technology company, the complaint against her charged. She also arranged to pay another alleged conspirator believed to be Deep Shah, the former Moody's analyst charged in the case "thousands of dollars in cash" for information about the ratings agency's clients, the complaint alleged. Other insider-trading defendants allegedly got paid in stock tips for their illicit information. [11] The government's fast-moving insider-trading case is being built on information from five cooperating witnesses, some of whom received information from investors and companies that haven't been charged in the probe, potentially broadening the case, people familiar with the matter said. 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.[39] 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.[40] 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.[8] The complaint released Thursday named two additional cooperating witnesses in the government's insider-trading case against Raj Rajaratnam, founder of hedge fund Galleon Group: Steven Fortuna, of Boston hedge fund S2, and.[39]

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.[8]

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.[17]

The charged defendants include hedge fund managers and trading firm executives, lawyers and corporate insiders.[19] Scott W. Friestad, Associate Director in the SEC's Enforcement Division, added, "Today's action highlights the apparent ease with which far too many lawyers, hedge funds and Wall Street traders are willing to break the law to obtain a bag of cash, a trading advantage or other perceived benefit. It is fundamentally unfair for these individuals to profit at the expense of honest investors and compromise the integrity of our markets."[9] 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.[15] The arrests are the latest in an ongoing probe into insider trading by hedge funds on Wall Street.[25]

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.[30] 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.[17]

Last month, Raj Rajaratnam, founder of hedge-fund firm Galleon Group, and five others were charged criminally with insider trading.[25] Congratulations to Arthur Cutillo, Michael Kimelman, and Jason Goldbfarb, three attorneys who stand accused of involvement in the infamous Galleon Group insider trading scheme. Both Cutillo and Kimelman have distinguished pedigrees, with ties to two top firms.[32]

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.[19] The defendants collectively are charged with allegedly participating in insider trading schemes that generated more than $20 million in illegal profits.[19]

Cutillo is not the first lawyer to be allegedly involved in an insider trading scandal. His arrest comes just days after a respected Toronto lawyer apparently committed suicide, while his alleged accomplice pleaded guilty to U.S. and Canadian criminal charges stemming from a 14-year insider trading scheme. The lawyer, Gil Cornblum, worked in the Toronto office of Dorsey & Whitney LLP. He was a partner there when Dorsey fired him in May 2008, according to the U.S. Securities and Exchange Commission.[28] 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.[21]

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.[15] The SEC alleged some trades took place between 1994 and 1998, when Cornblum was "articling" in a Toronto law firm and later worked in the New York office of Sullivan & Cromwell. One of the defendants in the case unveiled on Thursday, Michael Kimelman, is also a former Sullivan & Cromwell attorney, although he was at the elite New York-based firm for less than two years and left more than 10 years ago.[28] In a court filing citing a taped conversation from 2008, Goffer was quoted as telling Jason Goldfarb, a New York attorney also charged in the case, to avoid making trades that were too obvious. He allegedly referred to an unidentified individual who had bought options that would only be valuable if the stock made a large jump in price later on.[11] Current and past targets were code-named the "Hilton hit" and the "Apple." There was talk about "cash lying around," and investigators observed what they believed were hand-offs of white bags and cases packed with cash. In one phone call, an attorney, Jason Goldfarb, who was charged on Thursday, told Goffer that he had a meeting with the "boys" planned, but added they were like "nervous nellies."[31]

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.[24] Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. Prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled "you" and "me." After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half. "When Wall Street professionals or others exploit inside information for an illegal tip-and-trade binge, they undermine the level playing field that is fundamental to our capital markets," said Robert Khuzami, Director of the SEC's Division of Enforcement. "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. Now they face the prospect of financial penalties, industry bars, and even jail time for their indiscretions."[9] Guy Fawkes Day, and more fireworks along the insider trading front. Last week TCM broadcast the 1932 movie The Crash, where the character played by Ruth Chatterton tries to chum up with Wall Streeters to get inside information her investor husband can use. At one point, her husband (played by George Brent, her real life husband at the time) tells her there seems to be something going on, something wrong, but he can't figure out what, the market is showing no obvious signs. Soon enough in 1929 he found out. In 2009, 80 years after the events taking place in The Crash, both lead characters in that movie would be liable for arrest for trading on insider information. Bernie Madoff was clever, he never traded on inside information and, even better, he never traded at all on the market. These arrests now of those using insider information are theater, to show the SEC is on the job. The real insider traders make their option purchases a year to 18 months ahead of the deal date. The SEC does nothing about them, these guys get their information from the top, not from cleaning ladies who found takeover information in the wastepaper baskets of the offices they cleaned on Wall Street.[36] 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] Just last week, Ropes & Gray partner'' Christopher Conniff talked with''the New York Times for an article about the Galleon insider trading case, discussing the statue of limitations for these cases.[33] NEW YORK -(Dow Jones)- A new player has emerged in the biggest hedge-fund insider trading case on record: "the Octopussy."[24]

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.[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.[23] The "boys," according to prosecutors, was a reference to people sharing information with the alleged ring. Goldfarb said the "boys" were "hungry" because one had recently "spent his whole chunk of change" on his honeymoon and the other had "bought a new kitchen." "Now they're, they're ready to replenish, and that's what we're going to do," Goldfarb said, according to the complaint. Much like the drug traffickers in "The Wire," those accused in the insider-trading ring were constantly paranoid about a potential "rat" who would talk to the authorities. All their precautions didn't work. "When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such," Bharara said.[31]

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.[41] 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.[23] 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.[37] 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.[42] 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.[8] 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.[23] New York based Schottenfeld and Incremental are among a group of lesser-known hedge funds that are each organized as "eat-what-you-kill" shops.[38]

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.[8] 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.[6] 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."[21]

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.[24] If done well, and we know the SEC can't catch a two legged dog on ice, you can profit from it. Why do lawyers working for prestigious law firms don't do it? Is it because of the ethical guidelines or the small chance of getting caught? No, because they have a secure job that pays well and they have a future. They don't think it is worth it. What happens when a law firm constantly stealthly lays off associates, makes up bad reviewes for them while keeping them on payroll. What happens when all those who are there realize there is no freaking way in hell anybody is making partner in the next 5 years. The calculations change, especially for those who are about to be laid off, and people will engage in insider trading. If they see that they will be laid off, they can just screw with you and your clients in other legal ways such as doing a crappy job, making mistakes in documents, deleting half of your system and other more sinister ways.[32] 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.[43] How big is this going to get? Nine more people have been arrested in the insider trading scandal involving Galleon.[2]

Arthur Cutillo has been arrested as the Galleon insider trading investigation widens.[3] All of which is really rather interesting, Cutillo's expertise. For the essence of the allegations about the Galleon insider trading group was and is that they were working on inside knowledge about patents and other intellectual rights issues.[3]

News: Insider trading cases with private equity links are suddenly a dime a dozen, due to the Galleon scandal.[13]

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.[42] The arrests follow criminal charges last month against Raj Rajaratnam, founder of hedge-fund Galleon Group, and five others in a $20 million insider-trading case.[36]

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.[44] Zvi Goffer purchased about 19,000 shares of Kronos stock a few days before the acquisition announcement, profiting by approximately $156,370.[44]

For nearly two months before the companies announced the merger, Zvi Goffer purchased about 260,000 shares of 3Com stock, resulting in a profit of about $378,608.[44]

According to the SEC complaint, Goffer and his alleged coconspirators made about $11 million by trading on Cutillo's information. [14] 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.[24] Cutillo allegedly shared inside information about the 3Com acquisition and deals involving other clients with another New York lawyer named Jason Goldfarb.[14] Mr. Goldfarb, in turn, gave that information to Mr. Goffer. Both Messrs. Goldfarb and Cutillo are accused of receiving cash payments for the tips and an FBI agent charges he witnessed a cash drop between Mr. Goffer and Mr. Goldfarb in New York City.[10]

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] Bharara stressed that the investigation is not intended to "vilify" Wall Street and stock traders' legitimate hunt for corporate information.[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.[5] 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.[23] Ruiz is not charged but is linked to the Galleon case in a U.S. attorney's complaint.[43]

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.[17] We have gone far beyond that," Manhattan U.S. Attorney Preet Bharara said at a Lower Manhattan news conference announcing the new charges. "In fact, this investigation goes to the very heart of fair play in the business world."[11]

"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.[27]

U.S. Attorney Preet Bharara said today - "If you're a wealthy trader, you aren't special.[34]

The complaints also named five cooperating witnesses traders and company insiders who have pleaded guilty to involvement in the alleged insider-trading schemes in hopes of receiving leniency. [11] 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.[15] 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] 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.[26]

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.[15]

FBI Assistant Director Joseph M. Demarest Jr. stated, "Insider trading provides an illegal competitive edge over honest players in the hedge fund business.[19] The cooperation agreement did not name Cohen, a hedge fund billionaire, or SAC as taking part in illegal trading.[37]

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.[42] 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.[23] Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe.[19] Still want more? Browse the hedge fund blogs, authored by hedge fund industry experts.[19]

This entry was posted by Stacy-Marie Ishmael on Thursday, November 5th, 2009 at 17:52 and is filed under Capital markets, Hedge funds, People.[29] 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.[19]

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.[7] Shankar tips portfolio manager at a second unidentified hedge fund, which buys 3Com shares. Together, the defendants and others they tipped own 8,828,171 shares of 3Com.[11] August to September 2007: Drimal tips a portfolio manager at one unidentified hedge fund, which buys 3Com shares.[11]

No one at the Stamford, Conn. -based hedge fund, nor SAC itself, have been accused of any wrongdoing.[42]

One person was arrested in New Jersey and one person was arrested in Connecticut. In addition to employees at Ropes Gray, CNBC reported that employees Of Galleon, Schottenfeld Group, and Incremental Capital were among those arrested. [36] SAN FRANCISCO (Reuters) - Federal prosecutors have arrested nine more people in the Galleon Group insider-trading scandal.[44] Prosecutors working on the Galleon Group case warned after the first round of arrests that more were coming. This wasn't an exaggeration.[22]

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. [8] We found out about it today when the press called." Authorities allege Mr. Goffer used disposable cell phones with programmed numbers and gave them to his tippees with the numbers labeled "you and me." At one point, after an acquisition had been announced, Mr. Goffer removed the memory card from the phone, bit it, broke the phone in half, threw away one half and then instructed his tippee to throw away the other half. Robert Khuzami, director of the SEC's Division of Enforcement, commented on this procedure at yesterday's press conference. "There are certain moral truths that are self evident, and there should be a moment--hopefully before you're holding a bag of cash, delivered to you by somebody code-named the 'Octopussy' --that causes anyone in a position to tip or provide inside information, to think twice before taking such a misguided step." "And if you find yourself chewing the memory card of your cell phone to destroy your record of the conversation, something has gone terribly wrong with your character," he said.[10]

Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. Prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled "you" and "me." After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half.[29]

Mr. Cutillo allegedly gave information to Mr. Goldfarb on several mergers and acquisitions involving public companies that Ropes & Gray was advising, including Axcan Pharma Inc., Avaya Inc. and 3Com Corp.[10] Mr. Goldfarb was allegedly caught on a government wiretap talking with Mr. Goffer on Jan. 2, 2008, with Mr. Goffer saying, "We are gonna do things the same way but on a bigger scale," and to tell "our friends" to "follow the 3Com thing very closely because there is money to be made either way." Mr. Goldfarb, according to the complaint, tells Mr. Goffer he is "pissed" because they should have had "two more in the bag" and said that one of their associates "spooked Artie," a reference to Mr. Cutillo. During a Feb. 20, 2008 call, Mr. Goffer tells Mr. Goldfarb he is concerned that someone had purchased a conspicuous number of options on a stock.[10] For instance, the complaint against Ali Hariri, a vice president of Atheros Communications, a California firm that develops semiconductor system solutions, includes a taped conversation involving a cooperating witness who allegedly received non-public Atheros tips from the company insider. "I've probably made him, you know, between 50 to 80 grand this year on the stock tips that I've given him. He knows the puts and takes," the complaint quotes the witness as saying.[11]

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] An expanding insider-trading scandal is drawing attention to a breed of private investment firms responsible for heavy daily trading that operate largely out of Wall Street's limelight.[38] Referring to speculation that the charges filed Thursday could represent the tip of the iceberg of Wall Street illegal trading, Bharara said: "We don't have an answer to that, but we aim to find out."[11]

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] David Plate made about $100,000 in two separate trading accounts. When Hilton Hotels Corp agreed to sell itself to Blackstone Group LP, the companies said that Blackstone would acquire all outstanding stock of Hilton stock for 40 percent more that its previous day's closing price.[44] 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."[44]

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.[44]

"Well, today the alarm bells have only grown louder." According to the Securities and Exchange Commission, the arrests this morning and three weeks ago involved more than $53 million in illegal insider trading profits.[10] In total $40 million was believed a part of the insider trading scheme.[34]

Deep Shah, a former employee at Moody's Investors Service, was also charged with insider trading. He remains at large.[8] The cooperation agreements, released on Thursday by federal prosecutors, say Far has admitted engaging in insider trading as far back as 2003.[30]

Emanuel Goffer of New York, N.Y. - formerly a registered representative at the broker-dealer Spectrum Trading LLC, and currently associated with the broker-dealer Echotrade. [29] David Plate of New York, N.Y. - formerly a registered representative at Schottenfeld and currently a registered representative at the broker-dealer G-2 Trading LLC.[29]

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.[41] Cutillo is one of 14 people newly charged in the biggest hedge fund-related case in history.[28] Kimelman, a founder of Incremental Capital, is the second Westchester executive charged in the case.[5] Goffer is according to FBI is the alleged ringleader. Goffer founded Incremental Capital LLC. Involve in his alleged scheme were pre-paid cellphones.[34]

The complaint later says that in a December 2007 phone conversation, Goffer and fellow co-defendant David Plate wondered if another person was a "rat" that was trying to get Goffer to "say stuff." Both Plate and Goffer worked at Schottenfeld at the time, and both eventually moved on to Incremental.[24] 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] Zvi Goffer could have passed for Tony Soprano when he warned confederates in his alleged insider-trading ring that "someone's going to jail." Don't be too obvious about making big money, he said in a cell phone conversation intercepted by investigators in February 2008.[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.[24]

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.[23] 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.[6]

The Securities and Exchange Commission alleges that an insider-trading ring of Wall Street professionals made illegal profits from advance knowledge of several corporate acquisitions, including that of computer networking company 3Com.[11] The Wall Street Journal's Law Blog covers the notable legal cases, trends and personalities of interest to the business community.[36]

According to a copy stored on the Internet search site Google, Cutillo holds bachelor's and master's degrees in chemical engineering as well as a law degree from Villanova University. He joined Ropes & Gray as an intellectual property lawyer in 2005, after working at drug maker Merck & Co. "We are deeply disappointed to learn about this situation, which suggests an extreme breach of this person's duty of trust to our clients and to the firm,'' Ropes & Gray said in an e-mailed statement. [14] According to a cached version of Cutillo's page (which has already been removed by the firm), Cutillo joined Ropes Gray in 2005 and practiced in the litigation department. Before working at Ropes, Cutillo worked at Merck Co. He got his JD in 2005 from Villanova, and got his BS from Rutgers in 1999. This just in: According to the Dow Jones Newswires's John Koll, the FBI has taken into custody fourteen persons in an ongoing insider-trading probe of the hedge-fund industry.[36] Arthur Cutillo joined Ropes & Gray in 2005 and is an associate practicing in the Litigation Department. His practice focuses on Intellectual Property. Prior to joining Ropes & Gray, Arthur worked at Merck & Co., Inc. His experienced ranged from the supervision of vaccine production to ensuring the release of sterile vaccines to various markets worldwide.[3]

The Ropes Gray lawyer identified as having been taken into custody is Arthur Cutillo, an associate.[36]

Arthur Cutillo and Jason Goldfarb are attorneys and among five lawyers arrested today.[34] The third attorney, Jason Goldfarb, was an associate at the personal injury firm of Brecher Fishman Pasternack Walsh Tilker & Ziegler, in Brooklyn. As one might expect from a PI lawyer in Brooklyn, Goldfarb had a certain swagger to him; he allegedly derided some of his co-conspirators as "nervous nellies," essentially telling them to man up.[32]

Cutillo, 33, allegedly passed Goffer, 32, the tip-offs on the deals through a middleman, Jason Goldfarb, identified by the government as a 31-year-old lawyer residing in Manhattan.[4]

Bail set for the other defendants ranged from $100,000 to $500,000. Attorneys for Goffer and Goldfarb declined to comment after their clients were each released on $500,000 bond. [11] Using the information obtained from the two attorneys as well as other inside information obtained on Kronos Inc. and Hilton Hotels Corp., the Goffer group traded hundreds of thousands of shares.[10] Former prosecutor Carney says that prosecuting an attorney for divulging non-public information concerning a client can be problematic because lawyers' communications with clients are considered privileged. "It's actually kind of complicated for the government to investigate in a way that doesn't trounce on attorney-client privilege, which might cause some of the evidence to be suppressed," Carney says. For more examples of lawyers being accused of insider-trading, check out this 2007 article co-authored by Carney.[4]

Prior to becoming a full-time trader, Mr. Kimelman worked as a mergers and acquisitions lawyer for Sullivan & Cromwell. He is a Chartered Financial Analyst and graduate of the University of Southern California Law School.[32] and I apologize for my faulty memory - does anyone have the last name and religious / ethnic affiliation of the lawyer accused last week of running a Ponzi scheme out of Florida? I think he worked for a law firm called "Rothstein, Rosefeldt and Adler", but I'm not certain.[32]

If you work at a law firm, you can't help but to have access to tons of insider information and it is not difficult to find somebody who can use it.[32] What are you going to do, fire me twice? Clearly I would not care about my reputation among big law since I will never work there again. The lesson to learn from this is that partners cannot continiously treat associates like total shit because even though shit rolls downhill, once it accumulates enough, those on top will be siting in shit as well. If I WERE a client, I would not do business with firms who have a mistreated their associates and who have hundeds of people, most of whom still have insider info since many of the old deals are coming back, hating them. Firms like Latham, Orrick, Winston and others (please freel free to add) should not be trusted with confidential information because there is a chance that such information will leak or your deals will get screwed up on purpose.[32]

Of course, nobody should be dealing with ropes and gray. I would pull my deals back and make sure they delete everything from their system. You don't know how many more people are involved in this conspiracy. If this guy is as geeky as he appears to be, there is probably a more senior person involved. P.S. This is what happens when you hire people from shitty schools. Without you, they have no chance at a decent legal career both because they don't have a pedigree and cause they are stupid. It's either ropes and gray or and associates P.C., a shitty small firm where hiring partner would say something like this: "I would rather hire Suffolk graduates than those from Harvard or BU because Suffolk is better according to my great sense of judgment which have landed me in this amazing firm where I earn 250K as managing partner after 30 years of experience - or shit, my toyota avalon is getting towed." Yo, minorities running this website. EveR don't sensor anybody, which I prefer even as a Jew, or sensor these guys. Madoff's religion was mentioned CONSTANTLY. Every Jewish charity he helped rip off was on the news.[32]

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. [23] Prosecutors and the FBI declined to comment on any connections between the arrest of Rajaratnam, a billionaire, and the new charges.[17]

Five of the 14 new defendants pleaded guilty Thursday, including Roomy Khan, considered to be a key government witness in the case against Rajaratnam.[23] Of the 14 arrests announced Thursday, Mr. Bharara said five defendants had been previously charged, have pleaded guilty and are cooperating with prosecutors.[10] The alleged conspirators were charged on secret wiretap evidence and on information from at least five cooperating witnesses who allegedly got payoffs for passing inside information and have pleaded guilty.[11]

Goldfarb was also arrested yesterday, charged with passing the inside information on to Goffer.[14]

Goldfarb tips Zvi Goffer, a trader at broker-dealer Schottenfeld Group. Zvi Goffer tips his brother, Emanuel Goffer.[11]

Mr. Kimelman has been involved in trading and money management since 1997. He was previously the number one trader at several firms, including recently as a partner at Remsenberg Capital.[32] Sept. 28, 2007: 3Com says it will be bought by Bain Capital and Huawei Technologies for $5.30 per share. After announcement, traders sell their 3Com shares, making more than $11 million.[11]

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. [28] 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.[24]

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." [24]

Charges against the men included conspiracy and fraud, according to documents filed in New York federal court.[17]

SOURCES

1. AFP: 14 charged in Wall St insider trading probe
2. Galleon scandal expands - FierceFinance
3. Arthur Cutillo
4. Feds' New Insider Trading Target: Lawyers - Forbes.com
5. Larchmont businessman charged with insider trading | LoHud.com | The Journal News
6. Jersey lawyer charged in insider trading case | New Jersey Business - - NJ.com
7. Galleon Insider Trading Case Grows With Arrests - Daily Brief - Portfolio.com
8. More arrests in insider-trading scandal
9. SEC Charges Wall Street Lawyers and Traders in $20 Million Insider Trading Scheme | Kansas City infoZine News | USA
10. The New York Law Journal -
11. 'Octopussy' among 14 facing charges for insider trading - USATODAY.com
12. emii.com: DoJ Charges 14 In Insider Trading Probe
13. The Morning Leverage: Insider Trading And The Legal Profession - Private Equity Beat - WSJ
14. Net widens in Galleon investigation - The Boston Globe
15. Insider trading case draws in more Mass. companies - Daily Business Update - The Boston Globe
16. New Galleon defendants from law firm, fund -source | Business | STV News
17. BusinessDay - US prosecutors charge 14 over 20m insider trading scheme
18. FT.com / UK - 14 charged with inside trading on Wall St
19. » Manhattan Attorney Charges 14 With Over $20 Million in Hedge Fund Insider Trading » Hedge Fund News From HedgeCo.Net Hedge Fund News
20. Insider trading case widens - Winnipeg Free Press
21. 14 Charged In Insider Trading Case
22. Fourteen more nabbed for conspiracy, fraud (Dealscape - Scandal)
23. Hedge fund insider-trading scandal expands -- latimes.com
24. CORRECT: New Key Figure Emerges In Galleon Insider Trading Probe
25. UPDATE: List Of Individuals Linked With Insider-Trading Probe - WSJ.com
26. fullstory
27. UPDATE 6-US insider trading probe widens, ensnares 14 more | Reuters
28. Ropes & Gray law firm gets insider case black eye | Deals | Private Capital | Reuters
29. FT Alphaville » Blog Archive » Analysts, traders, hedgies, attorneys and other Galleon-accused
30. UPDATE 1-Trader pleading guilty also worked at SAC Capital | Reuters
31. Insider-trading ring acted like Wall Street version of the mob- International Business-News-The Economic Times
32. Lawyers of the Day: Arthur Cutillo, Michael Kimelman, and Jason Goldfarb - Above the Law - A Legal Tabloid - News, Gossip, and Colorful Commentary on Law Firms and the Legal Profession
33. DealZone » Blog Archive » Ropes & Gray: In the news again | Blogs |
34. Arthur Cutillo, Jason Goldfarb, Zvi Goffer, Craig Drimal Arrest!
35. Westwood man pleads guilty in stock fraud - BostonHerald.com
36. Ropes & Gray Lawyer In Custody In Galleon Case - Law Blog - WSJ
37. HedgeFund.net: Public news from HedgeNews
38. Spotlight Shines on Small Trading Firms Organized as 'Eat-What-You-Kill' Shops - WSJ.com
39. Five Cooperating Witnesses Propel Federal Probe - WSJ.com
40. Raj Rajaratnam, Founder of $3 Billion Galleon Group Hedge Fund, Arrested | Ethiopian News - EthioPlanet.com, Ethiopian Politics, Entertainment, Ethiopia
41. Unidentified Players Remain In Insider-Trading Case - WSJ.com
42. Galleon Informant Traded Illegally While At SAC | FINalternatives
43. [H]ard|OCP - 14 More Charged with Insider Trading
44. FACTBOX: More arrests in Galleon insider-trading case | Reuters

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