Former Galleon Group LLC trader Zvi Goffer, who is accused of leading an insider-trading ring, and four co-defendants urged a judge to dismiss the government’s case, citing the inadequacy of the evidence against them.
The men assailed “the government’s convoluted theory” of insider trading in a filing today in U.S. District Court in Manhattan. The “alleged inside tips consist of material information that is already public, or nonpublic information that is not material,” according to the brief.
Joining Goffer were co-defendants Craig Drimal, Emanuel Goffer and Michael Kimelman, all traders, and lawyer Jason Goldfarb. They are among 21 people accused in two overlapping insider-trading cases involving Galleon Group founder Raj Rajaratnam.
Rajaratnam, who denies wrongdoing, was arrested in October 2009 as part of a first wave of charges accusing him and others of trading on leaks from corporate officials, hedge-fund traders, and other insiders.
Goffer and his co-defendants were part of a second wave of arrests last November. So far, 12 people have pleaded guilty in the two cases.
Prosecutors said the Goffer ring traded on stock tips originating from lawyers at the Ropes & Gray LLP law firm in New York and from Gautham Shankar, an ex-trader at New York-based Schottenfeld Group LLC, where Goffer also worked. The U.S. has placed Goffer at the center of the scheme and claimed his accomplices called him “Octopussy,” a reference to the 1983 James Bond movie, because of his many sources of information. Goffer’s lawyers dispute the characterization.
Goffer’s 84-page brief includes arguments that the defendants may advance at trial. It says the evidence is insufficient and the criminal insider-trading statute is vague. Like Rajaratnam, they are seeking a ruling barring prosecutors from offering as evidence secretly recorded conversations of phone calls.
“The material information in question (that certain companies were acquisition targets and that certain companies were potential bidders) was already public,” the brief says. “The arguably nonpublic information (that Ropes & Gray was representing a long-standing client in making a potential bid) was not material.”
The defense assails a government claim that the men traded on information about two companies, Kronos Inc. and Hilton Hotels Corp., that allegedly came from the roommate of a former Moody’s Corp. analyst, Deep Shah, who is a fugitive. The information allegedly traveled from the roommate, who isn’t identified, to Shah and then to Shankar and to the defendants.
As there’s no evidence that Shankar knew the information was confidential, the defendants can’t be liable for trading on illegal tips, the brief says.
Jessie Erwin, a spokeswoman for U.S. Attorney Preet Bharara, declined to comment. Prosecutors will file a response to the defense brief.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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