Zvi Goffer, a former deputy of Galleon Group LLC co-founder Raj Rajaratnam, employed corrupt lawyers who passed tips on deals and used disposable mobile phones to communicate, a prosecutor told a jury in New York.
“This is a case about corruption, about traders who bribed lawyers to get secrets from companies,” Assistant Manhattan U.S. Attorney Andrew Fish told federal court jurors today in his opening remarks. “Traders who then used this information to buy stock and make millions of dollars.”
Goffer, 34, who left Galleon to work at Schottenfeld Group LLC and then founded his own firm, Incremental Capital LLC, went on trial with his brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both ex-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.
“This man, Zvi Goffer, was the ringleader of that scheme,” Fish said, pointing to Goffer. “He paid tens of thousands of dollars in cash bribes for inside information.”
Fish told jurors they would hear wiretaps of telephone calls Goffer made discussing the scheme with his co-defendants that were secretly recorded by the U.S. He also said the jury would hear from three cooperating witnesses who were participants in the scheme, including Brien Santarlas, one of two former Ropes & Gray LLP lawyers who pleaded guilty to passing tips to another co-defendant.
Fish said that when Goffer sought to get a job at Galleon, he passed inside information he had learned about a transaction involving 3Com Corp. and Axcan Pharma Inc. to Craig Drimal, a former Galleon trader. Drimal earned more than $6 million on the deal, Fish said.
“Goffer wanted Galleon management to see that he had access to inside information,” Fish said. Jurors will hear a wiretap of Goffer giving the lawyers credit for helping him get a job at Galleon, he said.
Zvi Goffer’s lawyer, William Barzee, said in his opening statement to jurors that his client was actually fired by Rajaratnam for his failure as a trader.
“‘Zvi Goffer, you’re fired,’ that’s what Raj Rajaratnam told Zvi Goffer after he went to work at Galleon,” Barzee said.
Barzee said Goffer based trades on research and by speaking to analysts and listening to rumors prevalent on Wall Street.
“He was like one of those gold prospectors with a tin pan, searching for gold in a river, and the river was the stream of information and gossip blogs,” Barzee said. “Zvi Goffer’s job was to listen to all these rumors and find this one gold nugget of information.”
Barzee told jurors that the government will play less than 1 percent of the telephone conversations actually recorded by the U.S. during the investigation. He called his client a “braggart” and said Zvi Goffer liked to exaggerate what he knew.
“This kind of exaggeration is a cottage industry on Wall Street. On Wall Street this is what people do. They pretend they have an edge,” he said. “Why? Because if you do, you’re more likely to invest with them.
“It’s stupid, it’s immoral, it’s probably wrong,” he said. “But it’s certainly not insider trading and it’s not illegal. It’s what happens every single day.”
Fish said that at one point, the two Ropes & Gray lawyers mistakenly saw papers in a room they believed involved the closing of a deal involving Clear Channel Communications Inc. and Bain Capital LLC, when instead it was documents in preparation for a lawsuit over the financing of the deal by six banks.
Barzee argued this was an example of his client’s ability to exaggerate what he knew.
“In Clear Channel he lost so much money that Raj Rajaratnam took him into the conference room and said, ‘You’re fired,’” Barzee said. “That’s insider trading?”
Michael Ross, a lawyer for Emanuel Goffer, told jurors today that his client had been a successful trader before joining his brother at Incremental. He said his client had no way of knowing if the information given to him was improperly obtained.
“Not everyone who trades stock is a thief or a crook,” Ross said.
Kimelman’s lawyer, Michael Sommer, told jurors in his opening statement that his client didn’t use a disposable phone, never paid for inside information and wasn’t recorded trading on insider tips.
“Thank God they made all these recordings,” Sommer said about the government. “There’s not a single recording -- not one -- in which you will hear Michael Kimelman buying stock on the basis of insider information that came to him.”
The scheme netted at least $20 million, the U.S. Securities and Exchange Commission alleged when it filed a related civil lawsuit.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).