Atheros Exec Among 14 Charged In Widening Insider Trading Probe
Early comments from prosecutors and investigators from the FBI and Securities and Exchange Commission provided details of the alleged insider trading operation, including the allegation that the defendants "took a page from drug dealers" in using prepaid cell phones to communicate with each other -- with one defendant allegedly going so far as to bite a cell phone chip in half to destroy evidence.
"If you find yourself chewing the card of a cell phone, something has gone terribly wrong," said SEC enforcement director Robert Khuzami at a Thursday press conference announcing the charges, as reported by The Wall Street Journal.
Among those charged were Ali Hairiri, a vice president at Santa Clara, Calif.-based Atheros; former Moody's analyst Deep Shah; and Incremental Capital founder Zvi Goffer, a former employee of the Galleon Group hedge fund who was nicknamed "Octopussy" by prosecutors because "he had his arms in so many insider" trading schemes.
Dubbed "Insider Trading II" by prosecutors, the new round of charges follows the arrests of Galleon Group founder Raj Rajaratnam, IBM executive Robert Moffat, Intel employee Rajiv Goel and three others in mid-October. Former Advanced Micro Devices CEO Hector Ruiz was also reportedly a source of confidential information to defendants in that case, although he has not been charged with any crime. As with the earlier charges, the criminal complaints filed Thursday were based on evidence gathered via telephone wiretaps and prominently feature the alleged trading of confidential, material information about several technology companies.
Specifically, the criminal complaint charging Goffer and six others cites alleged insider trading of information about several large deals involving private equity firms and high-tech companies, including the acquisition of telecom hardware manufacturer Avaya by Silver Lake and TPG Capital; the proposed acquisition of networking hardware manufacturer 3Com by Bain Capital Partners; and Hellman & Friedman's acquisition of workforce management software developer Kronos.
In addition to Goffer, that complaint named as defendants Arthur Cutillo, an intellectual property lawyer at Ropes & Gray LLP; attorney Jason Goldfarb; Craig Drimal, who worked in Galleon's offices but wasn't a Galleon employee; and Emanuel Goffer, Michael Kimelman and David Plate -- the latter three associated with Incremental Capital.
Hairiri and Shah were charged in separate criminal complaints filed Thursday. Shah -- who has been identified in media reports as the "Moody's analyst" cited in the earlier complaint against Rajaratnam, Goel and McKinsey & Co. director Anil Kumar -- is not currently in custody, U.S. Attorney Preet Bharara said in Thursday's press conference.
The five individuals who reportedly have already pleaded guilty include Roomy Khan, a California-based hedge fund manager who is thought to be a prominent cooperating witness in the complaint against Rajaratnam, Goel and Kumar. The others are Steven Fortuna, a former director of Boston-based hedge fund S2 Capital; Ali Far and Richard Choo-Beng Lee, affiliated with California-based hedge fund Spherix Capital; and Gauthan Shankar, a proprietary trader at the brokerage firm Schottenfeld Group, according to The Journal.
Bharara also left the door open for more criminal charges for insider trading in the coming days. "We're not finished," the prosecutor said. "How pervasive is insider trading? The answer is we don't know. But we intend to find out."