Federal prosecutors charged 14 hedge fund employees, lawyers and other investors with trading on insider information on Thursday, in a series of criminal complaints that all appear to be connected to charges already filed against the hedge fund billionaire Raj Rajaratnam.
Preet Bharara, the U.S. Attorney for the Southern District of New York, spoke about the arrest of 14 more people on insider trading charges related to the probe into Galleon and its founder Raj Rajaratnam.
The broadest of the complaints names seven defendants, including Arthur J. Cutillo, a lawyer at the prestigious firm of Ropes & Gray, who is accused of offering tips on impending takeovers that the firm worked on. The tips were then passed among a group of lawyers and traders who, in the hopes of avoiding detection, used prepaid cellphones, referred to stocks by fake names and met in cars. Some members of the ring were paid off in cash, according to the complaint.
The two men identified as leaders of the group, Zvi Goffer and Craig Drimal, are former employees of the Galleon Group, Mr. Rajaratnam’s hedge fund company. F.B.I. agents trailed members of the ring for more than two years, according to the complaint.
Mr. Rajaratnam, who was arrested last month and charged with trading on inside information, is now returning money to investors and winding Galleon down.
Mr. Goffer and several other defendants now work for Incremental Capital, a trading company that Mr. Goffer started in 2008. A secretary at Incremental said she could not comment on the arrests but that Incremental planned to return calls.
In a statement, Ropes & Gray said: “We are deeply disappointed to learn about this situation, which suggests an extreme breach of this person’s duty of trust to our clients and to the firm. We cannot comment in detail on an ongoing investigation, but we are moving quickly to protect our clients and are cooperating fully with authorities.”
A call to Mr. Cutillo was answered by a woman who said she could not comment.
The complaints represent a broad expansion of a case that has gripped the secretive world of hedge funds, in which the players eagerly seek any informational edge as they buy and sell stocks.
But the tips described in the broadest complaint on Thursday appear to fit more easily into the classic definition of insider trading than the case against Mr. Rajaratnam. In each example described in the complaint, the stocks rose quickly and predictably after the announcement of a deal, enabling conspirators to make large and low-risk profits in a matter of days.
In contrast, much of the complaint against Mr. Rajaratnam focuses on his practice of trading information and rumors in advance of quarterly earnings reports and other corporate announcements.
The defendants were extremely concerned about the possibility of wiretaps and informants, and frequently talked about ways to hide their deals, according to the complaint. It said that in February 2008, Mr. Goffer warned Jason Goldfarb, another defendant, against making trades that were too obvious.
Referring to someone who had bought options that would be valuable only if a stock made a large gain in a few weeks, he was quoted as saying: “You know what that means? Someone’s going to jail, going directly to jail, so don’t let it be you, O.K.?” Adding an expletive, he then said, “That’s a ticket to the big house.”
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