Pressured Prosecutors Pull Out the Stops in Latest Insider Trading Case
Nov 9th, 2009 • Posted in: NewsUnder pressure to stanch illicit flow of confidential information on Wall Street, prosecutors take a page from big-time cases
NEW YORK
The U.S. government has ramped up enforcement of insider-trading laws to such an extent that a current case is astonishing observers, who note that prosecutors are using tools and techniques that in the past have been relegated to major mob and drug cases.
Bloomberg reports that the current probe of the hedge fund Galleon relies on evidence gathered through wiretaps, surveillance, confidential informants wearing hidden microphones, and data mining using sophisticated software programs.
The Galleon case is part of a crackdown on insider trading, a crime that is relatively easy to commit but devilishly difficult to prove because there is a fine line between basic stock transactions based on incisive intelligence and illegally obtained proprietary information.
But insider trading is aggressively prosecuted because doubts about the integrity of the stock market undermine its profitability.
Forbes columnist Liz Moyer puts it this way: “The government is under pressure to clean up Wall Street after an era of excess that imploded into the financial crisis. Massive frauds have come to light that regulators had not detected despite ample warning, the most notorious example being the $65 billion swindle carried off over decades by Bernard Madoff, a former chairman of Nasdaq…. Regulators are eager not to let history repeat itself.”
In the Galleon case, prosecutors charge that hedge fund founder Raj Rajaratnam was at the center of a web of informants who passed along illegal information.
According to the Financial Times, the case now involves charges against 14 people, including two lawyers accused of passing along information about pending corporate mergers and acquisitions in exchange for kickbacks. Four already have entered guilty pleas, but Rajaratnam maintains his innocence.
The backlash of the case sometimes borders on the comical. The Los Angeles Times last week profiled an eavesdropping-detection specialist who is overwhelmed with requests from frantic hedge fund managers who want to know if the government is bugging them.
Sources: Bloomberg, Nov. 6 – Financial Times, Nov. 6 – Los Angeles Times, Nov. 6 – Forbes, Oct. 5.
For more information, see: Related Newsline story, Oct. 26 — Related Newsline story, May 11 — Related Newsline story, Jan. 7, 2008 — Related Newsline story, Apr. 23, 2007 — Related Newsline story, Mar. 5, 2007.
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