A couple of notoriously lax securities regulators would like to see the adjective “notoriously lax” excised from before their names.

First, to Toronto, where the Ontario Securities Commission is looking longingly at Preet Bharara’s ability to command the entire FBI to stop what it’s doing to surreptitiously tape some mid-level hedge fund analyst’s phone calls. Read more »

Later this week, Anthony Chiasson, a Level Global co-founder, and Todd Newman, a former Diamondback portfolio manager, will go to trial in Federal Court for allegedly making $67 million in ill-gotten gains, based on inside information they obtained about Nvidia Corp and Dell Inc. According to U.S. Attorney Preet Bharara, Chiasson and Newman, who’ve both pleaded not guilty, were able to rack up all their profits by teaming up with a bunch of friends and forming an insider trading club, which is a lot like a book club or fight club in that they took roll, traded canapé duties, and drank Pinot Grigio, but different in that instead of discussing The Art Of Fielding or punching each other in the face, they spent every Monday night from 7 to 9 sharing material non-public information with each other.

“This case describes a tight-knit circle of greed on the part of professionals willing to traffic in confidential information,” Bharara said when the charges were announced in January. “It was a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered inside information.”

In the beginning, when the club was first formed, there was a spirit of camaraderie, as the members happily traded tips for everyone’s mutual benefit. Unfortunately, things started to break down when some people agreed to cooperate with the government by recording their friends admitting wrongdoing in exchange for leniency. Former Diamondback analyst Jesse Tortora, for instance, attempted to incriminate fellow club member Danny Kuo on a call the FBI directed him to make on December 1, 2010, a conversation that Chiasson and Newman’s lawyers are now trying to use as evidence that Tortora, who will be testifying against them lacks credibility, based on the fact that when asked by Kuo if his phone was being tapped, Tortora didn’t say “Yup! Helping the Feds build a case against you, actually.” Instead he went with this:

“What’s happening, man?” Tortora asked during the call, according to a transcript prosecutors submitted to the court.

“Dude, is your phone tapped?” Kuo replied.

“Wait, is the phone tapped?” Tortora asked, adding, “Why do you ask that?”

Read more »

Over the course of the Rajat Gupta insider trading trial, attorneys for the former Goldman Sachs director have attempted to show that while their client was privy to material non-public information about, among others, Goldman and Procter & Gamble, and had an established relationship with Raj Rajaratnam, the hedge fund manager currently doing eleven years for trading on material non-public information, their client had no role in helping Raj-Raj score his ill-gotten gains. Last Monday the defense put a witness on the stand who told the jury that while once close, Gupta wasn’t even invited to Rajaratnam’s “lavish 50th birthday party that took place in Kenya,” ergo there is no way Rajat would’ve shared inside info with the guy. This week, the team was hoping to play wiretaps of conversations that took place between Rajaratnam and Goldman executive David Loeb, who they claim is the actual person who tipped off the Galleon manager. Unfortunately: Read more »

Earlier today, Raj Rajaratnam’s 7-man legal team rested its defense of the Galleon founder, accused of insider trading. This unfortunately means that the man of the hour will not take the stand, as some had hoped, but there may be a few more surprises in store. Read more »

That was one of the conversations played by the prosecution in court today, Day 3 of the Rajaratnam trial. Here was another:

“We know because one of our guys is on the board,” Rajaratnam told his friend, Rajiv Goel, during an Oct. 7, 2008, call. The two men are discussing the acquisition of PeopleSupport Inc. and Rajaratnam is telling Goel that he bought 30,000 shares for Goel’s account, according to the tape.

Incriminating or completely harmless? The government is hoping the jury’s reaction will lean toward the former, but according to the Rajaratnam defense team, the exchange was completely “harmless.” Nothing to see here. Read more »

  • 09 Jun 2010 at 12:13 PM

Rajaratnam Seeks Reversal of Wiretap Ruling

Attorneys for Raj Rajaratnam have filed a brief to the Second Circuit Court of Appeals seeking to reverse an order compelling them to turn over wiretap evidence to the Securities and Exchange Commission in the Galleon civil case.

The SEC wants the FBI’s wiretap evidence to bolster its civil suit against Raj and the other defendants but, the defendants are resisting, in part, because they say it was obtained illegally and are trying to suppress the evidence in the criminal case.  Read more »

lululemon-pants.jpgRaj Rajaratnam has maintained his innocence since he was escorted out of his Sutton Place apartment almost two months ago and apparently that’s the story he’s sticking with. His lawyers rejected federal insider trading charges this morning, for several reasons. These are our favorite:
1) The government shouldn’t have been allowed to wiretap him in the first place, because when it sought approval to do so, failed to mention it had already interviewed him under oath for another investigation, seen Galleon documents, etc. So whatever they may have overheard as a result of the taps– be it, “I can’t believe we’re getting away with this shit!” or otherwise– should not be held against Raj-Raj or Galleon.*
2) Let’s just say Raj received inside information (WHICH HE DIDN’T)– no one was ever paid or otherwise compensated for their hot tips.
3) Galleon wouldn’t have needed to gather and trade on inside information because the research done by its analysts was “more detailed and precise” than anything they could’ve gotten illegally. Unless the alleged inside information had the same in-depth research behind it as Galleon’s, i.e. a young analyst modeled Lululemon spandex on a conference room table, Raj would’ve had no use for it.
Here’s the full response, via DealBook:
*I have to say the government really fucked up on this one. Not because they shouldn’t have wiretapped Raj– that’s fine but because they failed Snooping 101. This is like when you think someone’s up to something, and you go and read their emails to check it out. When you find out you were right, you hold onto that info and then wait for them to fuck up and reveal it to you themselves. You can’t admit you know what you know because you used less than legitimate tactics to catch them, i.e. you were reading their shit. This is basically the same thing. God.

Read more »