How the Feds Pulled Off the Biggest Insider-Trading Investigation in U.S. History
By Patricia Hurtado & Michael Keller &Michael Keller
June 1, 2016

Update June 9, 2016 — Prosecutors announced others, including an ex-Oppenheimer & Co. investment adviser who is alleged to have reaped $370,000 in profit by trading on tips from a childhood friend who worked at Pfizer. Prosecutions have also won guilty pleas from two other individuals, bringing the total number of convictions to 93, although 14 were later dismissed. Other cases are ongoing. The graphic has been updated to reflect the latest developments.

For more than seven years, the U.S. government has relentlessly prosecuted Wall Street traders who used inside information to rake in hundreds of millions of dollars in profits.

Federal prosecutors in New York have racked up 91 convictions and collected almost $2 billion in fines. In the latest action on May 19, the government looked beyond Wall Street, accusing a legendary Las Vegas gambler of profiting from insider tips.

Here's a by-the-numbers look at what happens when the Feds get serious about insider trading.

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What did they do?

Dozens of traders got leaks from company insiders to win a trading edge in the market. In some cases, traders paid cash to their tipsters. In other cases, facilitators who were paid a fee acted as middlemen putting the two groups in touch.

Some of the most desired information: data about tech companies and drug trials.

Profits were enormous at times. Roomy Khan, a former Intel executive, collected $50 million while working as a trader.

Few did it all on their own.

  • Company insider
  • Trader
  • Facilitator
How did it work?

The suspects worked in what prosecutors described as rings — loose and sometimes overlapping groups of insiders, traders, and facilitators.

This arrangement, however, was also their undoing. Adopting tactics used against mobsters and narcoterrorists, the FBI infiltrated these rings using wiretaps and informants to work their way further up the chain.

For example, in the probe of Primary Global Research whose employees participated in one of the more innovative schemes, prosecutors got a huge boost from one informant: Karl Motey.

  • Goffer ring
  • Galleon ring
  • Primary Global Research
  • SAC Capital
  • Individual or small ring
How'd they get caught?

Motey was a tech industry analyst in Silicon Valley whose smaller insider-trading ring authorities uncovered in 2009. Posing for the FBI as a trader, he contacted an expert networking firm, Primary Global Research (PGR), that put him in touch with industry experts. Over the course of 400 recorded conversations, Motey discovered some PGR consultants eagerly supplied nonpublic information — for a price.

Using his information, investigators persuaded PGR consultants to cooperate. The chain helped lead them to numerous hedge funds, including SAC Capital which was founded by billionaire Steven A. Cohen, who was not accused of wrongdoing.

In a record settlement, SAC pleaded guilty and agreed to pay $1.8 billion — the largest insider-trading penalty in history — after it was described by prosecutors as "a veritable market for cheaters". Cohen's firm is now a family office called Point72 Asset Management. PGR filed for bankruptcy and is no longer in business.

  • Cooperated against
Who served time?

The incentive to cooperate was strong. Most who aided the government got off with a fine or probation, avoiding prison time.

Those who didn't cooperate served an average prison term of 34 months. Zvi Goffer and Raj Rajaratnam, who ran some of the larger rings and took their cases to trial, were sentenced to 10 and 11 years, respectively.

  • Pleaded guilty, cooperated
  • Pleaded guilty, did not cooperate
  • Went to trial, did not cooperate
Who paid up?

Those who avoided jail didn't get off entirely, though. Convictions produced a record $1.94 billion in individual fines from cooperators and noncooperators alike. SAC Capital paid $1.8 billion of that.

Billionaire fund manager Raj Rajaratnam, who relied on a Rolodex of insiders for tips, paid a record $64 million in criminal penalties alone. His civil penalty, not included here, was $93 million.

  • Cooperated
  • Pleaded guilty, did not cooperate
  • Went to trial, did not cooperate
Who was cleared?

It didn't all go smoothly for prosecutors. In December 2014, an appeals court reversed the convictions of two traders, Anthony Chiasson and Todd Newman, ruling there wasn't enough evidence that they knew their sources got a material benefit for passing tips — an interpretation of "insider trading" that makes it harder for the government to bring future cases.

As a result, prosecutors dismissed the charges against 12 others because the cases were similar. Those who won dismissals included six cooperators and former SAC trader Michael Steinberg, whom a jury had found guilty in one of the highest-profile trials of the crackdown.

The U.S. Supreme Court has since agreed to hear another case on insider trading to clarify the law.

Are the insider probes over?

After the Newman and Chiasson appeal, prosecutors brought only a handful of new cases. But one of them was a blockbuster. In May, the government accused former Dean Foods Co. Chairman Tom C. Davis of passing tips to sports gambler William "Billy" Walters in exchange for loans, business opportunities and investment capital.

Davis is cooperating while Walters is fighting the charges. And in an unusual twist, authorities said Walters suggested to pro golfer Phil Mickelson that he bet on Dean Foods too. Mickelson wasn't criminally charged but he did agree to surrender almost $1 million he made on the trade after the Securities and Exchange Commission said the cash was ill-gotten gains.

Where are they now?

Of the 76 people convicted, only a handful are still in prison. Barred by the SEC from working in the financial industry, some of those released have started new careers.

Steve Fortuna, co-founder of S2 Capital and known as "Tuna," who once wore a body wire for the feds, provided information that led to several guilty pleas. He has since launched a company selling water infused with "flower essences."

Noah Freeman, who gave up his best friend at SAC Capital and another fund manager, briefed the FBI on the inner workings of the hedge fund, saying it was "understood" you had to provide inside information to succeed. He has since trained triathletes and worked as a marketing consultant.

David Slaine was a star cooperator whose secret recordings starting in 2007 helped spur the government's investigation that eventually led to more than a dozen arrests. He has since founded a New York chain that trains and grooms dogs.