Prosecutors charge 14 in trading probe

November 06, 2009 08:59:56 AM

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Law enforcement officials in New York announced Thursday charges against 14 people in a widening probe into the largest ever alleged hedge-fund insider trading scheme on Wall Street.

US 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.

Of the 14, eight were arrested early Thursday, while a ninth was being sought. Five other defendants had already been charged and have pleaded guilty in federal court in New York to insider trading crimes.

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.

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."

Twenty people have now been charged in the insider trading probe.

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.

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.

Rajaratnam faces up to 20 years in prison for allegedly using insider information from heavyweight companies including Google, IBM, Hilton and Moody's.

Rajaratnam's fund was estimated to be worth 3.7 billion dollars when it was shut down.

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.

"If you traffic in inside information, there's always a chance the person you conspire with is working for us. If you talk on the phone, we may be listening," he said.