Manhattan U.S. Attorney Preet Bharara, whose office has charged 72 people in a nationwide crackdown on insider trading, said he anticipates more work for his securities-fraud unit, the oldest in the country.
At the Bloomberg Markets 50 Summit in New York today, Bharara said the securities-fraud cases his prosecutors and federal agents are now seeing are more complex than in the past.
The unit, which recently marked 50 years fighting white-collar crime, brought cases against financier Ivan Boesky and junk-bond king Michael Milken in the 1980s. Insider-trading schemes have grown in scope, said Bharara, 43.
The new breed of securities-fraud defendants “engage in insider trading on the kind of scale that I don’t think we’ve seen in public prosecutions that have been brought,” said Bharara, speaking with Bloomberg News Editor-in-Chief Matt Winkler before a gathering of fund managers and members of the financial community in New York.
“There were people who were not just committing one-offs and found out about a tip from an uncle or someone, but people who actually had as a business model a plan to have multiple sources at multiple places, and sometimes redundant sources,” Bharara said.
More than two dozen people have been convicted of securities fraud tied to convicted Galleon Group LLC fund manager Raj Rajaratnam, who was found guilty last year of being at the center of what the U.S. said was the largest hedge-fund insider trading case in the nation’s history. Rajaratnam is serving an 11-year prison term.
The 68 people who have either pleaded guilty or been convicted at trial by Bharara’s office run the gamut from company insiders to fund managers who got the illegal tips, he said. Many of the portfolio managers have multiple, sometimes overlapping sources of inside information and work in different states or even in another country, he said.
Those who his office has prosecuted “aren’t just traders at hedge funds, but also people who are insiders at companies, people who are in every different kind of sector and every different geographical area,” he said.
Bharara said this leads him to conclude that insider trading is on the rise.
“It’s completely fair to say it’s widespread, if not rampant,” he said.
The recent round of prosecutions, which began in late 2009, is the result of an initiative called “Perfect Hedge,” which was started five years ago by agents with the Federal Bureau of Investigation in New York and Bharara’s office.
The office last month won the conviction of Doug Whitman, the president and founder of Whitman Capital LLC. The fund manager spent more than two days on the stand telling jurors he was innocent, while prosecutors summoned cooperating witnesses and played recorded phone calls and court-authorized wiretaps that told another story. A federal jury in Manhattan convicted Whitman after about five hours of deliberations.
This month, Hyung Lim, a former Altera Corp. executive from California, pleaded guilty to passing illegal tips about his company and Nvidia Corp., some which were relayed to a group of fund managers accused of running an insider-trading “criminal club.”
Lim’s defense lawyer said his client will testify at the trial of Anthony Chiasson, a former Level Global Investors LP co-founder; Jon Horvath, a former technology analyst at SAC Capital Advisors LP’s Sigma Capital Management LLC; and ex- Diamondback Capital Management LLC portfolio manager Todd Newman. That trial is scheduled to begin on Oct. 29.
The use of wiretaps and consensual recordings as evidence in insider-trading cases may give some people pause, just as it did when the government deployed such tactics against organized crime, Bharara said.
“When people have to wonder whether or not law enforcement is listening, and they have to wonder whether or not the person they’re talking to is wearing a wire, I think that causes people to think again, not once, but twice, and perhaps three or four times about engaging in that activity,” Bharara said.
As in the case of Whitman, hearing the words out of a defendant’s own mouth during a recorded call or wiretap can also make a jury’s job easier, he said.
“Insider trading, the offense, is basically a crime of communication,” he said. “It doesn’t take a rocket scientist to appreciate that if you actually have the communication, you’re more able to prove the conduct.”