Galleon Case: The Man Who Was 'Octopussy'Paul M. Barrett
In the weeks after FBI agents arrested him on insider-trading charges in November 2009, Zvi Goffer maintained his bravado. The government, he told former colleagues from Galleon Group, a manager of hedge funds, could not possibly have damning evidence against him.
One of those associates recalls asking Goffer if he'd been reading the papers and telling him that the feds seemed to be pretty serious. A sign that the FBI might have incriminating evidence was that weeks before Goffer's arrest, agents had detained Galleon's co-founder, Raj Rajaratnam, an alleged beneficiary of Goffer's insider tips. The investigation was a lot bigger than Goffer could admit to himself, says the former colleague, who worked with Goffer at Galleon. The ex-colleague, who has not been charged in the insider-trading investigation, spoke with Bloomberg Businessweek on the condition that he not be named.
The trial of Goffer, his brother Emanuel, and a third associate that got under way on May 16 marks the second round of intertwined cases tied to a nationwide insider-trading probe now unfolding in federal court in Manhattan. Opening arguments came only a week after Rajaratnam was convicted in the same courthouse of directing the biggest illegal stock-tipping ring since the 1980s. The connection between the two trials will become evident when prosecutors play undercover recordings of Rajaratnam in the Goffer case, U.S. District Judge Richard J. Sullivan has said. "Mr. Rajaratnam is going to be a factor in this trial," Sullivan told lawyers in a hearing before the start of jury selection.
Still, this won't feel like a replay of the Galleon chief's trial. Rajaratnam, 53, was a billionaire philanthropist with ties to other leading American businessmen and financiers of South Asian descent. Goffer, 34, operated in a more modest world of hedge fund hangers-on whose activities resemble those of day traders.
According to prosecutors, Goffer, who ran money for Rajaratnam at Galleon for about eight months in 2008 before starting his own firm, Incremental Capital, was referred to by some of his associates as "Octopussy." The James Bond movie allusion supposedly suggested Goffer's many tentacles reaching for confidential corporate information. His former colleague doesn't recall anyone using the nickname, however. While someone may have said "Octopussy" on an FBI wire, the nickname wasn't heard around the office, he says.
Goffer was a popular, rough-around-the-edges young man whose father drove a New York City cab for 30 years, the former colleague says. At Galleon, Goffer's role wasn't entirely clear to some of his co-workers. He hung around with the secretaries and chatted about popular TV shows such as The Bachelor, the former colleague says. Over time, though, it became apparent that Rajaratnam believed Goffer had valuable stock tips.
Goffer and two Incremental colleagues—his brother Emanuel, 32, whom everyone called "Nu," and Michael A. Kimelman, 40—are charged with conspiracy and securities fraud. Manhattan U.S. Attorney Preet Bharara has charged 14 people as members of the Goffer ring. Ten have pleaded guilty, and one remains a fugitive.
Prosecutors allege that Zvi Goffer paid tens of thousands of dollars to two attorneys with the corporate law firm Ropes & Gray for information on pending takeovers the firm was handling. The lawyers have pleaded guilty to securities fraud, and at least one is expected to testify for the government. Goffer's sources passed along tips on acquisitions of companies including 3Com (HPQ), Axcan Pharma, Kronos Worldwide (KRO), and Hilton Hotels, according to prosecutors. The group netted at least $20 million, the Securities and Exchange Commission has alleged in a related civil lawsuit.
All three men have denied wrongdoing. William R. Barzee, Zvi Goffer's lawyer, said in his opening statement to jurors on May 18 that his client "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 called Goffer a "braggart" who exaggerated what he knew.
Like many young traders, Zvi Goffer seemed like he was in a big hurry to make a lot of money, his former colleague says. He bought expensive seats at Knicks basketball games and invited friends to Madison Square Garden.
After his arrest, Goffer repeatedly declared that he wouldn't turn on Rajaratnam and provide the FBI with incriminating information. He was not a "rat," he told his former colleague and others.
In one call recorded by the FBI, Goffer told an associate, "We have become so paranoid for no reason," according to a government summary of the wiretaps. In another, he cautioned a co-defendant who has since pleaded guilty: "Someone's going to jail, going directly to jail, so don't let it be you, O.K.?"
The tough talk on tape may distinguish the Goffer trial from the Rajaratnam case, in which the defendant's lawyer argued that his client relied on analysts' reports and other legitimate information as the basis of trades. The Goffer tapes are likely to "sound a lot like Sopranos dialogue," says Anthony Sabino, a professor at the Peter J. Tobin College of Business at St. John's University in New York. "Any juror who watches a lot of TV will know that they sound more like gangsters committing crimes than real traders."
The bottom line: The alleged Goffer insider-trading ring netted profits of $20 million, according to a civil lawsuit filed by the SEC.