Last week in London, five former employees of derivatives broker Blue Index were charged with insider trading. In Tokyo, a subsidiary of Walmart Stores is under investigation. Across the Atlantic, last week highlighted more key developments.
On Monday, November 22, the FBI raided the offices of three prominent hedge funds. On Tuesday, the mutual fund manager Janus Capital revealed it had been subpoenaed. On Wednesday, a US District Judge admitted wiretap evidence of over 2000 conversations, a breakthrough in the pending Galleon trial, the largest ever insider case to date. That same day, investigators swooped down on Don Ching Trang Chu, a naturalized Taiwanese American citizen, who has been linked to the Galleon probe.
Prosecutors have stepped up their game, arguing that they should be entitled to every legitimate tool to get at the truth in this shadowy netherworld. Insider trading cases are exceptionally difficult for governments to win, as I discuss in a December 2009 article in Fund Strategy, ‘Shipwrecked’.
It takes time and resources to apply to a judge for a wiretap, then monitor and analyse it. “Recordings are the absolute best evidence, and so we will not shrink from using them,” promised Preet Bharara, Manhattan’s top federal prosecutor, in an October 20 speech. (article continues below)
Prosecutors are digging beyond corporate executives into the rank and file. On September 30, the SEC launched a case against two railyard workers, charging them with tipping off relatives about the acquisition of their company by Fortress Investment Group. The complaint describes how the workers had noted well-dressed businessmen touring the rail yards, and a daylong train trip taken by Fortress executives in a special carriage.
“Insider trading is rampant and on the rise,” warned Bharara, describing its global proliferation, augmented by sophisticated technology, the volume and complexity of modern stock trading, and the explosion of newsletters, websites, blogs and tweets feeding every last rumor. His teams of attorneys are raring for battle.
Since many investors believe markets are a rigged casino, a few government victories might even allay some cynicism.
Vanessa Drucker is the American Editor of Fund Strategy, based in New York City. She has worked as a financial journalist for 20 years. In the 1980s, she practiced banking and securities law on Wall Street, and is the author of two business novels. Vanessa can be contacted at firstname.lastname@example.org.