http://www.nytimes.com/2009/11/06/business/06network.html November 6, 2009 A Scheme That Relied on Early Deal Tips, With Touches From a James Bond Movie By DIANA B. HENRIQUES âWe have become so paranoid for no reason,â the young trader told his friend in an evening call on his cellphone in late February 2008. There was always a reason to be paranoid, his friend responded, and they agreed to continue their talk at their Manhattan gym. The topic was illegal insider trading, according to federal prosecutors and market regulators. And the paranoia was justified: the calls were being intercepted by the F.B.I. as part of an expanding investigation by the government into the improper use of confidential information by Wall Street traders. On Thursday, the trader, Zvi Goffer, 32, was arrested and accused of being the linchpin of an illegal tipping-and-trading ring so elaborate that he was nicknamed âOctopussy,â because his tentacles touched so many confidential sources, prosecutors said. One of those sources, according to prosecutors, was Arthur J. Cutillo, 33, a lawyer at the prestigious firm of Ropes & Gray, who was also arrested on Thursday. He was accused of sharing secret information with Mr. Goffer on at least four deals the law firm was handling for clients. Mr. Goffer and some of the other people arrested Thursday had personal and professional links with defendants in a larger insider trading case pending against the Galleon Group hedge fund; its founder, Raj Rajaratnam; and other defendants added to the case through a new civil complaint filed by the Securities and Exchange Commission on Thursday. âWhen we announced our first arrests three weeks ago, I said this case would be a wake-up call for Wall Street,â said Preet Bharara, the United States attorney in Manhattan. âWell, today the alarm bells have only grown louder.â Unlike the Galleon case, where senior officials at corporations passed tips on early earnings estimates to people at the fund, the Goffer case centers on allegations that may sound more familiar to students of the insider trading scandals of 25 years ago â early tips about deals from the people involved in doing them. According to the criminal complaints, Mr. Cutillo passed the information along through a friend, Jason C. Goldfarb, 31, who specialized in workers compensation law at a private firm in Brooklyn and who was also arrested on Thursday. While the $20 million in illegal profits involved in the Goffer complaint were not large, the governmentâs complaint includes touches that one senior regulator likened to scenes from a James Bond film. According to prosecutors, Mr. Goffer insisted that Mr. Cutillo and Mr. Goldfarb communicate through disposable cellphones â a technique more common in organized crime and drug trafficking than in Wall Street research. And when the illegal trading was complete, Mr. Goffer destroyed his phone by biting its SIM card in half with his teeth, prosecutors said. âIf you find yourself chewing the memory card in your cellphone to destroy any record of your misconduct, something has gone terribly wrong with your character,â said Robert S. Khuzami, the S.E.C. enforcement director, who announced the agencyâs own civil fraud charges against those named in the criminal complaint. Besides Mr. Cutillo, Mr. Goldfarb and Mr. Goffer, the criminal and civil complaints named Craig C. Drimal, 53, an independent investor who worked out of Galleonâs offices, as well as several traders who had links to the Schottenfeld Group, a trading firm where Mr. Goffer once worked, or to Incremental Capital, the firm Mr. Goffer currently owns. The traders included Michael A. Kimelman, 38; David Plate, 34; and Emanuel Goffer, 31, Mr. Gofferâs brother. In addition, the S.E.C. complaint named Gautham Shankar, a former Schottenfeld trader who has pleaded guilty in the criminal case, and the Schottenfeld Group itself, which shared in what regulators say were illegal profits from the trading ring. Lawyers for all of the named defendants declined to comment on the twin cases. The Schottenfeld Group said in a statement that it was âdeeply troubled and shocked by the criminal allegations made today against former members of our firm,â but noted that the individuals had not been affiliated with the firm for nearly two years. âWe plan to cooperate fully and completely with the authorities in their investigations of this matter,â the statement continued. Ropes & Gray, where Mr. Cutillo had worked as an intellectual property lawyer in its New York office since 2005, said it was âdeeply disappointed to learn about the situation, which suggests an extreme breach of this personâs duty of trust to our clients into the firm.â A spokesman for the firm declined to comment on any internal investigation at the firm but said it was cooperating with the authorities and âmoving quickly to protect our clients.â Prosecutors and regulators say that Mr. Goffer orchestrated illegal trading aimed at profiting from secret information Mr. Cutillo had supplied about four 2007 deals involving clients of Ropes & Gray. These were the acquisitions of Alliance Data Systems, Avaya, 3Com and Axcan Pharma. After Mr. Goldfarb passed his friendâs tips along, Mr. Goffer traded on them for Schottenfeld, where he worked at the time, and passed them to other hedge fund managers and professional traders at Schottenfeld and elsewhere, according to the civil complaint. âWeâre not just talking about aggressive hedge fund traders who were trying to get an edge â someone had to give them that illegal edge,â Mr. Bharara said. âIt takes two to tango.â It is in these downstream trades that the Goffer complaint becomes tangled with the larger Galleon investigation, according to court records. Not only had Mr. Goffer worked for almost a year at Galleon, his subsequent âtippiesâ included Mr. Drimal, according to the complaints. All of the defendants facing criminal charges were released on $500,000 bail after an arraignment in federal court in Lower Manhattan on Thursday evening.