Insider trading case as much Sopranos as Wall St

Zvi Goffer could have passed for Tony Soprano when he warned confederates in his alleged insider-trading ring that "someone's going to jail."

Don't be too obvious about making big money, he said in a cell phone conversation intercepted by investigators in February 2008.

"Someone's going to jail, going directly to jail, so don't let it be you, OK?" Goffer said, according to a criminal complaint. "That's a ticket right to the (expletive) Big House."

According to federal prosecutors, Goffer was the boss of an insider trading operation that paid sources for non-public information. He and 13 others were charged on Thursday as the scandal centered on Goffer's former employer, hedge fund Galleon Group, widened dramatically.

A criminal complaint naming Goffer, head of the trading firm Incremental Capital, and his alleged accomplices reads like a script for TV dramas like "The Wire" or "The Sopranos," in which drug and Mafia criminals try to stay one step ahead of the law.

Federal prosecutor Preet Bharara told a news conference that investigators resorted to wire taps and other methods "traditionally reserved for the mob and narcotics traffickers" when the accused began "taking a page from the drug dealers' playbook (and) deliberately used anonymous, hard-to-trace, pre-paid cellphones in order to avoid detection."

Calls recorded by law enforcement officials were littered with nicknames like "the Greek" and "the Rat," and even jokes about getting information from a guy fixing a pothole. Current and past targets were code-named the "Hilton hit" and the "Apple."

There was talk about "cash lying around," and investigators observed what they believed were hand-offs of white bags and cases packed with cash.

In one phone call, an attorney, Jason Goldfarb, who was charged on Thursday, told Goffer that he had a meeting with the "boys" planned, but added they were like "nervous nellies."

The "boys," according to prosecutors, was a reference to people sharing information with the alleged ring.

Goldfarb said the "boys" were "hungry" because one had recently "spent his whole chunk of change" on his honeymoon and the other had "bought a new kitchen."

"Now they're, they're ready to replenish, and that's what we're going to do," Goldfarb said, according to the complaint.

Much like the drug traffickers in "The Wire," those accused in the insider-trading ring were constantly paranoid about a potential "rat" who would talk to the authorities.

In the end, all their precautions didn't work.

"When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such," Bharara said.

http://www.moneycontrol.com/news/legal/insider-trading-case-as-much-sopranos-as-wall-st_423255.html

 

Feds now using anti-mob tactics on Wall Street
By Star-Ledger Guest Columnist
November 11, 2009, 5:14AM



ws.jpgAPBy Robert A. Mintz/ Star-Ledger Guest Columnist

The arrests of billionaire Galleon hedge fund founder Raj Rajaratnam and 19 other people on insider trading charges should send shock waves through Wall Street boardrooms and trading floors, not only because of the size and scope of the allegations, but also because of how prosecutors built their case.

The arrests in October and last week should leave no doubt that the law enforcement techniques that had for years been reserved for mob bosses and drug kingpins are now being used to bring down Wall Street hot shots. Wiretaps, long the darling of organized crime prosecutors who used them against the mob, have now been unleashed for the first time on Wall Street.

Because wiretaps are among the most intrusive and expensive investigative tools available to law enforcement, they are not easily obtained nor frivolously employed by prosecutors. In the standard criminal case, a wiretap application must be approved by a judge after submitting a detailed application that contains credible and substantiated evidence that a telephone is currently being used to facilitate illegal activity.

Generally, it is impossible to obtain a wiretap without the assistance of a confidential informant. This is frequently someone on the inside, often a co-conspirator, who can attest to ongoing criminal activity. And once the wiretap is obtained, it requires hundreds of law enforcement man-hours to operate. Every call has to be monitored and recorded to determine if it is relevant to the investigation.

But the value to prosecutors can be enormous. Typically, insider trading cases are prosecuted by building a circumstantial case after the fact. Prosecutors develop a pattern of trading, then try to show that the defendant bought or sold securities in a manner that was inconsistent with that prior pattern of conduct and instead tied to some piece of inside information that was not publicly available.

Rarely do they have tapes of telephones calls while the alleged insider trades are occurring. But that is exactly what prosecutors allege they have here. If so, it signifies a radical change in the way prosecutors are going after these financial crimes.

While there is no doubt that prosecutors pursued Enron, WorldCom, Tyco, Adelphia and other major financial frauds aggressively, these cases were all pursued after the fact, when investors had already lost most or all of their investment. These new charges tell us prosecutors have ratcheted up the scrutiny on Wall Street and increased the resources they are willing to devote to these types of cases. Rather than trying to recreate the scheme as they did with Enron, for example, prosecutors are now trying to build these cases from the inside out, using confidential informants to pursue frauds in real time before all of the damage is done.

Critical to that success will be their ability to recruit insiders who are willing to cooperate with investigators and lead them through a potentially illegal scheme. According to prosecutors, the Galleon case was four years in the making and used at least one well-placed confidential source. If nothing else, that tells us that federal prosecutors were listening in and monitoring this alleged wrongdoing for years.

According to news reports, Rajaratnam was fond of repeating a quote he once heard: "Only the paranoid survive." If that adage were ever true, it may not be any longer.

Robert A. Mintz is the former deputy chief of the Organized Crime Strike Force Division of the U.S. Attorney’s Office in New Jersey. He is currently head of the government investigations and white collar criminal defense practice group at McCarter and English LLP.