Goffer Trial Witness Says He Traded Merger Tips for Cash-Filled Envelopes

The jury in the trial of former Galleon Group LLC trader Zvi Goffer heard from a disbarred lawyer who told of using prepaid cell phones to pass along merger tips gleaned from his former law firm and taking cash- stuffed envelopes in return.

Brien Santarlas, 34, who worked as an attorney in the New York office of the firm Ropes & Gray LLP, testified yesterday in the trial of Goffer, a former employee of Galleon Group LLC co- founder Raj Rajaratnam, and two other men on trial for insider trading in federal court in Manhattan.

Santarlas, testifying under a cooperation agreement with the government, said he and another former Ropes & Gray attorney, Arthur Cutillo, told Brooklyn, New York, lawyer Jason Goldfarb in 2007 about acquisitions involving 3Com Corp. and Axcan Pharma Inc. He said Goldfarb gave him $25,000 for the 3Com information and $7,500 for Axcan.

“When I received the cash, Jason had told me to dispose of the phone -- break it in half, submerge it in water and put it in a garbage can,” Santarlas testified.

Prosecutors claim Goldfarb passed the information to Goffer, who used it to get a job at Galleon. Santarlas, Cutillo and Goldfarb have all pleaded guilty in the case.

Assistant U.S. Attorney Andrew Fish played recordings of wiretapped phone calls between Goffer and Goldfarb in which they discuss Goffer’s new job at Galleon.

‘Bigger Scale’

“I’m playing on a bigger scale,” Goffer said on the recording.

Santarlas told jurors he and Cutillo began passing tips after a conversation over drinks in the summer of 2007.

“While we were making good money, it seemed like nothing compared to what they were making on Wall Street,” Santarlas said. “Art made the suggestion that there’s other ways to make money.”

A friend of Cutillo’s knew a trader who would pay for tips about corporate acquisitions, Santarlas said Cutillo told him.

“My understanding was the trader would buy the stock and he could essentially make money when the acquisition was announced publicly,” Santarlas testified.

Santarlas said he picked up information from talking with colleagues, trolling office printers for deal-related papers and searching Ropes & Gray’s document management system for keywords including “3-Com” and “merger.”

Fired by Galleon

Goffer, 34, founded his own firm, Incremental Capital LLC, after he was fired from Galleon, his lawyer, William Barzee, said in his opening statement to jurors May 18. Goffer is being tried with his brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both former traders at Incremental.

All three men are charged with securities fraud and conspiracy, stemming from one of three overlapping rings tied to Galleon, prosecutors said. They face as long as 20 years in prison if convicted of fraud.

Santarlas is scheduled to continue his testimony when the trial resumes on May 23.

The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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