FBI insider trading inquiry likely to lead to prosecutions


The investigation, by the US attorney’s office in Manhattan and the FBI, has been under way for several years – and extends far beyond Wall Street

FEDERAL PROSECUTORS in New York are in the advanced stages of an extensive insider trading investigation that could lead to criminal charges against Wall Street traders and executives, federal law enforcement officials said at the weekend.

US authorities had been preparing to file charges in the investigation within weeks, but that timetable could be accelerated after an article about the investigation appeared in the Wall Street Journal on Saturday, the officials said.

The investigation, conducted by the US attorney’s office in Manhattan and the FBI, has been under way for several years and extends far beyond Wall Street to financial offices across the county, the paper reported.

Officials would not discuss specific companies or individuals under scrutiny or provide further details. The Securities and Exchange Commission (SEC) is conducting a parallel civil probe, officials said.

The Journal reported that authorities are investigating bankers at Goldman Sachs in particular who may have given confidential information about healthcare mergers to certain investors.

Goldman is the top provider of investment banking services in healthcare deals. A Goldman spokesman declined to comment.

The Journal also said that prosecutors are examining consultants with industry expertise who may be be providing confidential information to hedge funds and mutual funds. The story said that one subject of the investigation is Primary Global Research, a Mountain View, California, firm. Chief executive Unni Narayanan said in an interview: “We have no insight into what the government is investigating. All we know is Primary Global Research is not a target.”

Spokesmen for the US attorney in Manhattan, justice department and SEC all declined to comment.

Federal authorities, including US attorneys and the FBI, have been pouring resources into investigating what one senior federal law enforcement official called “rampant” illegal insider trading.

Officials say they are facing new challenges detecting, investigating and prosecuting abuses, given the speed and complexity of the financial markets and a burst of new electronic media over which traders can communicate.

Preet Bharara, US attorney for the southern district of New York, has been leading the charge on insider trading investigations, calling it a “top criminal priority” and embracing new, controversial tools such as wiretaps to investigate potential abuses.

Last year, Bharara joined the SEC in filing the largest insider trading case ever against Raj Rajaratnam, founder of the Galleon Group hedge fund, and a host of associates. Rajaratnam has maintained his innocence and is fighting the charges in the courts. More than 20 people have been charged in the investigation.

“Illegal insider trading is rampant and may even be on the rise,” Bharara said in a speech last month to the New York City Bar Association. But he cautioned: “It has perhaps never been more difficult to attack through traditional investigative means.”

He said the challenges include the fact that stock trading occurs at such high speeds and in such high volume that it can be difficult to pinpoint specific transactions completed on the basis of inside information.

He also said the growth in the number of financial newsletters, websites, blogs and social media “publishing every last rumour and report of potential mergers and acquisitions and earnings reports”, has made it easier for those accused of insider trading to claim they acted on the basis of something they read.

Bharara defended the use of wiretaps to investigate insider trading cases.

In the Galleon case, Rajaratnam’s lawyers have argued that the use of a wiretap should be reserved for especially severe types of criminal cases – such as narcotics and terrorism – and that prosecutors acted improperly in obtaining a judge’s approval for a wiretap. Another judge is weighing whether to allow prosecutors to use the wiretaps as evidence in court in the case against Rajaratnam.

Prosecutors and the SEC have been pressing other insider trading cases recently. This month, prosecutors in Manhattan charged a French doctor with providing illegal inside information to a hedge fund manager about a drug undergoing review.

Last month, former Countrywide chief executive Angelo Mozilo agreed to settle insider trading and other charges brought by the SEC by agreeing to pay $67.5 million. About $22.5 million of that amount is actually being paid by Mozilo; the rest is being covered by Bank of America, which acquired Countrywide, which has an indemnification agreement with Mozilo. – (Washington Post, Bloomberg)