Charges In Largest Alleged Hedge Fund Insider Trading Case In History; Is Law Enforcement Listening?

Charges were announced today against six individuals –  including hedge fund managers and Fortune 500 executives – arising out of their alleged involvement in the largest hedge fund insider trading case in history. The defendants are: Raj Rajaratnam, the Managing Member of Galleon Management, LLC, and a portfolio manager for Galleon Technology Offshore, Ltd.; Danielle Chiesi, an employee of New Castle Funds, LLC, formerly the equity hedge fund group of Bear Stearns Asset Management, Inc.; Mark Kurland, a top executive at New Castle; Rajiv Goel, a Director in Strategic Investments at Intel Capital, the investment arm of Intel Corporation; Anil Kumar, a Director at McKinsey & Company, Inc., a global management consulting firm; and Robert Moffat, Senior Vice President and Group Executive at International Business Machines Corporation. All were charged with participating in insider trading schemes that together netted more than $20 million in illegal profits. This case represents the first time that court-authorized wiretaps have been used to target significant insider trading on Wall Street.

According to the two complaints unsealed today in Manhattan federal court: Rajaratnam, Kurland, Chiesi, and others repeatedly traded on material, nonpublic information given as tips by insiders and others at hedge funds, public companies, and investor relations firms – including Intel, IBM, McKinsey, Moody's Investors Services Inc., Market Street Partners, Akamai Technologies, Inc. and Polycom, Inc. The government alleges that, as a result of their insider trading, these three defendants and others earned millions of dollars of illegal profits for themselves and the hedge funds with which they were affiliated.
 
According to the government, telephone conversations between Rajaratnam and Chiesi, intercepted based on court-authorized wiretaps of phones, as well as consensually recorded conversations with an individual who subsequently became a cooperating government witness (the "CW"), revealed that Rajaratnam, Kurland, Chiesi, and the CW routinely received inside information directly or indirectly from insiders and provided it to each other for the purpose of trading based on the information. The material, nonpublic information pertained to upcoming earnings forecasts, mergers, acquisitions, or other business combinations (the "Inside Information").
 
U.S. Attorney Preet Bharra said, "Today, we take decisive action against fraud on Wall Street. This case should be a wake up call for Wall Street. It should be a wake up call for every hedge fund manager and every Wall Street trader and every corporate executive who is even thinking about engaging in insider trading. As the defendants in this case have now learned the hard way, they may have been privy to a lot of confidential corporate information, but there was one secret they did not know: we were listening. Today, tomorrow, next week, the week after, privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?"