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.”
“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,” US Attorney for the Southern District of New York Preet Bharara told a news conference on Thursday.
“When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such,” he added.
Federal prosecutors have alleged that it involved US$40 million in insider trading profits based on their investigation so far. The US Securities and Exchange Commission estimated the amount at US$53 million. The SEC total includes some profits not reflected in the criminal probe.
The latest charges involve some of the same companies and individuals implicated in the Galleon Group insider trading scandal that broke three weeks ago. It was unclear whether the illegal networks were linked.
“People will probably ask just how pervasive is insider trading these days? Is this just the tip of the iceberg?” Bharara said. “We aim to find out.”
In the largest branch of the investigation, Zvi Goffer, manager of New York-based trading firm Incremental Capital, was accused of leading an insider trading ring that netted US$11 million.
Prosecutors said they had uncovered illegal profits of more than US$20 million, on top of the $20 million that authorities say was pocketed by the Galleon Group.
The Galleon case is already the biggest hedge fund insider trading scheme in Wall Street history, and in Thursday’s complaint one of the suspects admitted to years of insider trading apparently overlapping with his time at a former job at SAC Capital, perhaps the nation’s best-known hedge fund.
Raj Rajaratnam, Galleon’s billionaire founder, is accused of masterminding the operation. He lost a bid to have his US$100 million bail reduced, though a US magistrate judge agreed to ease his travel restrictions.
The Galleon case is turning into one of the biggest insider trading rings since the Ivan Boesky scandal of the 1980s led to the end of a gilded age for Wall Street and ultimately brought down Michael Milken’s Drexel Burnham Lambert.
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