Wall Street’s biggest insider trading investigation has grown dramatically with another 14 arrested overnight, bringing to 20 the number charged and the emergence of what appears to be an associated ring of insiders.
The latest charges involve at least $US33 million ($A36.3 million) more in claimed illegal profits, taking the total in the related cases to more than $US50 million.
The US Securities and Exchange Commission (SEC) charge details contain some colourful details of how the inside information was traded, the extent to which those doing it tried to cover their tracks; with a leading character, Zvi Goffer, described as “the Octopussy” within the insider-trading ring due to his reputation for having his arms in so many sources of inside information.
According to an amended complaint from the US Securities and Exchange Commission, the extra charges give the original allegations greater force.
Some on Wall Street now say the Galleon case could be the scandal that defines the great debt binge and bust of the “Noughties”, much in the way that the Ivan Boesky case marked the great 1980s boom, and the charges that flowed from the failure of Enron and Worldcom at the end of the tech and net boom.
According to the SEC’s claims, the new charges involve some of the same companies and individuals implicated in the Galleon Group scandal and its founder, Raj Rajaratnam.
“The SEC’s amended complaint, filed in federal court in Manhattan, names sources for the confidential insider tips to Rajaratnam and identifies others who traded on the basis of non-public information in a scheme that cumulatively generated more than $33 million in illicit gains. The SEC previously brought charges against Rajaratnam, Galleon and six others on October 16.
“Today’s amended complaint names some of the sources for the insider tips and confidential information to Rajaratnam and Galleon, and identifies other traders who traded on the basis of the same inside information or other newly identified inside information coming from various sources,” the SEC said.
So far it is not certain whether the illegal networks were linked or were loosely associated, trading information and trades, but the fact that traders outside Galleon and some of the newly named funds who picked up some of inside info have been charged, will strike fear into Wall Street.
Already investigations are under way into the way some of Galleon’s banks exchanged some types of information with the hedge fund.
Executives at, or formerly at, major companies such as Intel, AMD, IBM and McKinsey have been charged, raising further questions.
Some reports suggest the SEC’s work hasn’t stopped with the latest charges.
The main part of the new charges relate to Goffer, manager of New York-based trading firm Incremental Capital, who was accused of leading an insider-trading ring that netted $US11 million. He worked at Galleon for a while. Six lawyers were also charged.
Prosecutors said they had uncovered illegal profits of more than $US20 million — that’s on top of the $US20 million involved in the original Galleon case where Rajaratnam, is accused of being the mastermind. It’s unclear if the $US11 million claimed from the Goffer ring is included in the new $20 million figure.
The Financial Times Alphaville blog site described the latest charged as: “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. But the SEC has also broadened its inquiry beyond the scope of mere Galleon.
“Separately, the SEC charged a pair of lawyers, six Wall Street traders and a proprietary trading firm in a broad expansion of the case:”
According to the SEC site, some of those passing the information were extremely cautious.
It said three of those charged “Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, 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.”
The FT site has details of each of the latest individuals charged and where they worked, as does the SEC papers.
The 51-page SEC document details hundreds of alleged instances where the charged individuals passed inside information and proceeded to trade illegally. It details more of trading and remuneration links between Galleon, Rajaratnam and some of those charged with him and charged overnight.
Also overnight, Rajaratnam lost an application his $US100 million bail cut to $US25 million.
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