The FBI has arrested 14 people, including attorneys and Wall Street professionals, as part of an ongoing $25 million insider trading case. According to several media reports, the case is connected to an investigation of the Galleon Group, a former prominent New York-based firm that once managed $7 billion and specialized in technology and healthcare companies.
Its founder, the billionaire hedge fund manager Raj Rajaratnam, and five others were arrested and charged Oct. 16 for making illegal stock trades based on secret tips. Federal prosecutors have described the investigation as the largest hedge fund insider-trading ring ever prosecuted, involving executives of some well-known U.S. companies, including Intel (INTC), IBM (IBM), and McKinsey & Co. management consultants.
The FBI has confirmed that 8 people are in custody Thursday after being arrested in connection with the case. Those arrested include Craig Drimal, who according to court documents worked at Manhattan-based Galleon, but wasn’t an employee of the firm. Also arrested were Zvi Goffer, Arthur Cutillo, Jason Goldfarb, Emanuel Goffer, David Plate and Michael Kimelman. The FBI says those arrested are employees of Galleon, Schottenfeld Group, law firm Ropes & Gray, and Incremental Capital.
Citing today’s court filings, financial news service Bloomberg notes that some of the defendants traded on inside information related to Bain Capital LLC’s proposed buyout of 3Com Corporation (COMS). Cutillo, an attorney who worked at Ropes & Gray LLP, allegedly stole information from his law firm and leaked inside information to Jason Goldfarb.
The scandal has sent shockwaves through the financial world at a time when hedge fund industry performance was improving and investors were committing new money.
Manhattan U.S. Attorney Preet Bharara and the Securities and Exchange Commission scheduled a press conference for noon today in New York to announce the filing and discuss the case.