U.S. Attorney General Eric Holder confirmed today that the Justice Department is conducting a criminal investigation related to trading on Wall Street.
In response to questions about the probe of insider trading, Holder said an “investigation is ongoing” and described it as “very serious.” Holder was questioned at a news conference at the Justice Department in Washington.
“I don’t want to get into the details,” he said. The investigation is being conducted by the U.S. attorney’s office in New York, he said.
The FBI searched the offices of three hedge funds in New York, Connecticut and Massachusetts last week as the investigation became public.
As part of the investigation, Steven A. Cohen’s SAC Capital Advisors LP received a government subpoena for documents. Federal Bureau of Investigation agents on Nov. 22 searched the offices of Level Global Investors LP and Diamondback Capital Management LLC. Both firms were founded by former employees of Stamford, Connecticut-based SAC.
A third hedge fund, Boston-based Loch Capital Management, was searched the same day.
“Rampant” Insider Trading
Wellington Management Co., the Boston-based money manager that oversees $598 billion, said last week the U.S. has asked for documents. Denver-based Janus Capital Group Inc. said last week they’d been asked for general information, without identifying the agency that made the request.
U.S. Attorney Preet Bharara in Manhattan has been leading a crackdown on what he said in a speech this month was “rampant” insider trading on Wall Street and is devoting “significant resources” to the investigations.
Insider trading prosecutions require the government to prove that people bought or sold securities using material, non-public information with the intent to defraud.
Bharara’s office is prosecuting two alleged overlapping insider trading rings centered on Raj Rajaratnam’s Galleon Group hedge fund. So far 14 have pleaded not guilty in that case. In that case, the government used wiretaps to gather information in what prosecutors have characterized as the biggest probe of insider trading at hedge funds.
In that probe, former SAC employee Richard Choo-Beng Lee, who later founded Spherix Capital LLC, pleaded guilty to criminal charges and is cooperating with prosecutors.
In an unrelated trial this month, Brooklyn rabbi Milton Balkany was convicted of trying to extort $4 million from SAC, by claiming he could prevent a federal prisoner from telling U.S. authorities about alleged insider trading at the firm.
According to court records, Balkany told an investigator with Bharara’s office, in a conversation secretly recorded by prosecutors, that SAC had inside tips about medical device makers Cyberonics Inc. and Respironics Inc. and Myriad Genetics Inc., which makes molecular diagnostic products.
An SAC lawyer alerted prosecutors to the extortion attempt, and a prosecutor said during the trial that Balkany “lied” and that there was no evidence of illegal trades.