Attorneys representing potential targets of the government’s wide-ranging investigation into insider trading are bracing for another round of charges, the FOX Business Network has learned.
After a relative lull in enforcement actions and arrests in the past few months, government investigators are signaling another round of enforcement actions that are likely to appear in the coming weeks, according to people with knowledge of the government probes.
“What I am hearing is that some very large busts are coming shortly,” according to one person who has spoken with people at various regulatory agencies that are part of the insider-trading probe. This person says the enforcement could include traders and industry executives who supply inside information to hedge funds and work at companies known as “expert networks.”
Spokespeople at the Securities and Exchange Commission and the FBI declined to comment.
Of course, it’s always difficult to predict the timing of arrests or enforcement actions on any matter, particularly the current insider trading investigation, which involves a criminal investigation into whether market participants used illegal insider information to profit on trading stocks.
Securities fraud charges require substantial proof and the intent to commit a crime, which in this case would be knowingly trafficking and trading on “material non public” information of stocks.
However, armed with wiretapped conversations among various market players, government investigators have made no secret that the dozens of arrests and plea deals struck so far are just the beginning of the enforcement actions, and that many more are to come.
Whether the current tally of actions is the beginning or the middle is difficult to know, but they certainly don’t mark the end of the inquiry, according to people close to the matter. Government investigators led by the US Attorney for the Southern District have gathered as evidence at least 300 hours of wiretapped conversations, on around five dozen traders, according to a court filing release in the summer, so the list of targets is likely to have grown.
Indeed, hints of the upcoming enforcement actions emerged in the summer after two former executives with ties to an “expert network” firm pleaded guilty to supplying traders and others with illegal insider information.
Prosecutors believe the use of expert networks, or firms that supply detailed company information to traders, is at the heart of the current wave of insider-trading cases. These firms, prosecutors believe, often step over the line and supply traders with illegal non-public information on stocks, particularly in the technology and health-care sectors.
Walter Shimoon, a technology company executive who worked as a consultant for the expert network firm Primary Global, mentioned several hedge fund industry executives as being the recipients of illegal inside information when he entered his guilty plea back in July.
One person Shimoon cited as being on the receiving end of his tips was John Kinnucan, who ran a research firm called Broadband Research. Kinnucan denies that he shared insider tips with his clients, which included large hedge funds such as SAC Capital and Citadel Investments, but he’s preparing for the worst.
Kinnucan recently told FOX Business that his attorney has asked federal prosecutors to give Kinnucan the opportunity to turn himself in, rather than having the FBI come to his house and arrest him unannounced if he is to be charged. Kinnucan says his attorney has yet to hear back from prosecutors.
“My attorney did this because my wife has a heart condition,” Kinnucan said in an interview, “and the last time the Feds came to my house they upset my wife.”
Kinnucan gained a degree of fame when he sent out to his clients an email stating that two FBI agents showed up at his home last year and tried to pressure him into wearing a wire to entrap his clients.
Kinnucan declined the offer and has told FOX Business that federal authorities have since approached his clients and pressured them into wiretapping conversations with him.
The SEC and the FBI declined comment.