Zvi Goffer, the ex-Galleon Group LLC hedge fund trader, was convicted with his brother and a third defendant on all counts by a jury in the second trial to result from a nationwide crackdown by the U.S. on insider trading.
Goffer was convicted yesterday in federal court in Manhattan of all 14 counts of conspiracy and securities fraud against him. His brother Emanuel and Michael Kimelman were each convicted of the three conspiracy and securities fraud counts they faced.
“It was a very difficult case,” juror Susan Apter of Westchester County, New York, said outside the courthouse. “The government had a great case.”
The verdict comes about a month after Zvi Goffer’s former boss, Galleon co-founder Raj Rajaratnam, was found guilty in the same courthouse of directing the biggest hedge fund insider-trading scheme in history. Goffer’s jury began its deliberations June 2.
Rajaratnam and Zvi Goffer were key players in three overlapping insider-trading conspiracies that implicated banks, technology firms, hedge funds and so-called expert networking firms.
Goffer, 34, his brother and Kimelman were charged with using tips from two lawyers to profit on trades in 3Com Corp., Axcan Pharma Inc., Kronos Inc. and Hilton Hotels Corp. Jurors heard recordings of wiretapped phone calls and testimony from witnesses who pleaded guilty in the case and were cooperating with the government.
Tips from Lawyers
Prosecutors said the three men, who co-founded Incremental Capital LLC after Zvi Goffer was fired by New York-based Galleon in 2008, used information that the lawyers, then working at the Boston-based law firm Ropes & Gray LLP, learned about pending acquisitions through their work there.
After the verdict was read, Zvi Goffer dabbed his eyes with a tissue. His wife left the courtroom weeping.
“We’re disappointed in the verdict,” said William Barzee, a lawyer for Goffer. “It was a difficult case.” He said his client will appeal.
David Pettus, another lawyer for Goffer, said after the verdict that his team tried to pursue the opposite strategy from that followed by Rajaratnam’s lawyers. Instead of presenting extensive evidence on the defense case, Goffer’s team focused on trying to undercut the government’s evidence and the cooperating witnesses, he said.
Pettus noted that both cases had similar results: conviction on all counts.
“I guess there’s no defense that’ll work when your guy’s on tape,” he said.
After the verdict, jurors declined to be interviewed by the defense lawyers in the case.
The U.S. Securities and Exchange Commission claimed in a related lawsuit that the alleged scheme resulted in at least $20 million in illicit profits. Fourteen people were charged in the purported insider-trading ring. Ten pleaded guilty, and one is a fugitive.
Zvi Goffer’s lawyers argued their client sometimes bluffed about having inside information to impress other Wall Street traders. Lawyers for Emanuel Goffer and Kimelman said that their clients weren’t part of any alleged conspiracy with Zvi Goffer.
They face as long as 20 years in prison on the most serious charges when they’re sentenced by U.S. District Judge Richard Sullivan, who presided over the trial. Zvi Goffer’s sentencing is set for Sept. 21. His brother’s sentencing was to be set for two days later, until one of the lawyers told the judge that’s when Emanuel Goffer’s wife is due to give birth. He and Kimelman will both be sentenced Oct. 7. All three defendants remain free on bond pending sentencing.
Rajaratnam, who was convicted on all 14 counts against him, faces as long as 19 1/2 years in prison when he’s sentenced on July 29.
In addition to the Rajaratnam and Goffer trading schemes, a third ring allegedly centered on so-called expert networkers is the focus of a trial under way in Manhattan federal court. A former Primary Global Research LLC consultant, Winifred Jiau, faces insider-trading charges for allegedly giving inside information to financial industry clients at hedge funds.
At Goffer’s trial, which began May 18, former Ropes & Gray attorney Brien Santarlas told jurors that he and another lawyer at the firm, Arthur Cutillo, used prepaid mobile phones to pass on news about pending mergers in exchange for envelopes stuffed with cash.
Prosecutors said the lawyers gave the tips to Jason Goldfarb, a Brooklyn, New York, lawyer who passed the information to Zvi Goffer.
In a Jan. 2, 2008, wiretap, Zvi Goffer is heard calling himself “responsible for a honeymoon and a kitchen” in a conversation with Goldfarb. Prosecutors told jurors that Goffer was referring to the $25,000 he gave to Santarlas and Cutillo for tips on a deal involving 3Com. Goldfarb, Santarlas and Cutillo all pleaded guilty.
Prosecutors said the ring also traded on tips from Gautham Shankar, an ex-trader at New York-based Schottenfeld Group LLC. Shankar pleaded guilty to two criminal counts in 2009 and has yet to be sentenced. On June 8, Shankar was ordered by a judge in the SEC’s lawsuit to pay almost $278,000.
Zvi Goffer used the tips to impress Rajaratnam and to get a job at Galleon, where he worked for part of 2008, according to the government.
Prosecutors told jurors that Zvi Goffer made incriminating phone calls in the presence of Emanuel Goffer and Kimelman, in which he discussed the sources of the insider tips and ways to mislead regulators who might ask questions about their trades.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).