A further 14 people have been charged in the widening of what is believed to be the biggest insider trading case involving hedge funds. The new indictments bring the total number of people officially charged in the insider trading case, first brought to light with the arrest of Raj Rajaratnam, to 20.
At the centre of a new insider trading ring is Zvi Goffer, 32, a former trader at the Galleon Group and Schottenfield Group - two hedge funds. According to prosecutors, Goffer was referred to by others in the insider trading ring as “Octopussy” a reference to the James Bond movie, because of the many sources of inside information he had access to. Also charged Arthur Cutillo, 33, an attorney at Ropes & Gray who supplied tips on deals that the law firm was advising on, and Jason Goldfarb, 31, a Brooklyn-based lawyer who acted as a go-between for Goffer and Cutillo.
The others arrested were Craig Drimal, 53, a Galleon employee; Zvi Goffer’s brother Emanuel Goffer, 31; Ali Hariri, a vice president at Atheros Communications, David Plate, 34, an employee at Incremental Capital; and Michael Kimelman, 38. Deep Shah, a former analyst at Moody’s investor service, was still at large, prosecutors said. They were charged with conspiracy and fraud, and were released on bonds of between US$100,000 to US$500,000.
Another five people, including Roomy Khan, a former Intel employee and who is a key witness in the Rajaratnam case, have already pleaded guilty.
According to a 24-page criminal complaint filed in a New York federal court, prosecutors say that the group used non-public information to trade in shares of Avaya, a privately held telecommunications communications company. They also traded in shares of network equipment provider 3Com, retail solution provider Alliance Data Systems, and drug maker Axcan Pharma. The new charges bring the total illicit profit gained by the group from trading on inside information to US$53 million, according to the Bloomberg report.
Prosecutors also said that those charged behaved like common criminals, and took a page from the way drug dealers operated. In one instance, they said that the conspirators used mobile phones to communicate sensitive information related to a bid by private equity firm Bain Capital to purchase 3Com. After the deal was announced, they said that both the phones and SIM cards inside were destroyed to destroy an records of their misconduct.
In announcing the new charges, Manhattan US attorney Preet Bharara said that the current probe was focused on hedge funds, and how they obtained their information. He added that more arrests may be coming.
The US Securities and Exchange Commission has also filed a civil complaint against those arrested.
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