Thread: U.S. in Vast Insider Trading Probe

“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information.... We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web.”

John Kinnucan, of Broadband Research, in an Oct. 26 email to clients



By SUSAN PULLIAM, MICHAEL ROTHFELD,JENNY STRASBURG and GREGORY ZUCKERMAN

Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter.


The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.

The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.

One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.

Among the expert networks whose consultants are being examined, the people say, is Primary Global Research LLC, a Mountain View, Calif., firm that connects experts with investors seeking information in the technology, health-care and other industries. "I have no comment on that," said Phani Kumar Saripella, Primary Global's chief operating officer. Primary's chief executive and chief operating officers previously worked at Intel Corp., according to its website.

In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.

Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.

"Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," the email said. "(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web."


The email, which Mr. Kinnucan confirms writing, was addressed to traders at, among others: hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management. SAC, Wellington and MFS declined to comment; Janus and Citadel didn't immediately comment. It isn't known whether clients are under investigation for their business with Mr. Kinnucan.

The investigations have been conducted by federal prosecutors in New York, the FBI and the Securities and Exchange Commission. Representatives of the Manhattan U.S. Attorney's office, the FBI and the SEC declined to comment.

Another aspect of the probe is an examination of whether traders at a number of hedge funds and trading firms, including First New York Securities LLC, improperly gained nonpublic information about pending health-care, technology and other merger deals, according to the people familiar with the matter.

Some traders at First New York, a 250-person trading firm, profited by anticipating health-care and other mergers unveiled in 2009, people familiar with the firm say.

A First New York spokesman said: "We are one of more than three dozen firms that have been asked by regulators to provide general information in a widespread inquiry; we have cooperated fully." He added: "We stand behind our traders and our systems and policies in place that ensure full regulatory compliance."

Key parts of the probes are at a late stage. A federal grand jury in New York has heard evidence, say people familiar with the matter. But as with all investigations that aren't completed, it's unclear what specific charges, if any, might be brought.




The action is an outgrowth of a focus on insider trading by Preet Bharara, the Manhattan U.S. Attorney. In an October speech, Mr. Bharara said the area is a "top criminal priority" for his office, adding: "Illegal insider trading is rampant and may even be on the rise." Mr. Bharara declined to comment.

Expert-network firms hire current or former company employees, as well as doctors and other specialists, to be consultants to funds making investment decisions. More than a third of institutional investment-management firms use expert networks, according to a late-2009 survey by Integrity Research Associates LLC in New York.

The consultants typically earn several hundred dollars an hour for their services, which can include meetings or phone calls with traders to discuss developments in their company or industry. The expert-network companies say internal policies bar their consultants from disclosing confidential information.

Generally, inside traders profit by buying stocks of acquisition targets before deals are announced and selling after the targets' shares rise in value.

The SEC has been investigating potential leaks on takeover deals going back to at least 2007 amid an explosion of deals leading up to the financial crisis. The SEC sent subpoenas last fall to more than 30 hedge funds and other investors.

Some subpoenas were related to trading in Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009, say people familiar with the matter. Schering-Plough stock rose 8% the trading day before the deal plan was announced and 14% the day of the announcement. Merck said it "has a long-standing practice of fully cooperating with any regulatory inquiries and has explicit policies prohibiting the sharing of confidential information about the company and its potential partners."

Transactions being focused on include MedImmune Inc.'s takeover by AstraZeneca Plc in 2007, the people say. MedImmune shares jumped 18% on Apr. 23, 2007, the day the deal was announced. A spokesman for AstraZeneca and its MedImmune unit declined to comment.

Investigators are also examining the role of Goldman bankers in trading in shares of Advanced Medical Optics Inc., which was taken over by Abbott Laboratories in 2009, according to the people familiar with the matter. Advanced Medical Optics's shares jumped 143% on Jan. 12, 2009, the day the deal was announced. Goldman advised MedImmune and Advanced Medical Optics on the deals.

A spokesman for AstraZeneca and its MedImmune unit declined to comment.

In subpoenas, the SEC has sought information about communications—related to Schering-Plough and other deals—with Ziff Brothers, Jana Partners LLC, TPG-Axon Capital Management, Prudential Financial Inc.'s Jennison Associates asset-management unit, UBS AG's UBS Financial Services Inc. unit, and Deutsche Bank AG, according to subpoenas and the people familiar with the matter.

Representatives of Ziff Brothers, Jana, TPG-Axon, Jennison, UBS and Deutsche Bank declined to comment.

Among hedge-fund managers whose trading in takeovers is a focus of the criminal probe is Todd Deutsch, a top Wall Street trader who left Galleon Group in 2008 to go out on his own, the people close to the situation say. A spokesman for Mr. Deutsch, who has specialized in health-care and technology stocks, declined to comment.

Prosecutors also are investigating whether some hedge-fund traders received inside information about Advanced Micro Devices Inc., which figured prominently in the government's insider-trading case last year against Galleon Group hedge fund founder Raj Rajaratnam and 22 other defendants.

Fourteen defendants have pleaded guilty in the Galleon case; Mr. Rajaratnam has pleaded not guilty and is expected to go to trial in early 2011.

Among those whose AMD transactions have been scrutinized is hedge-fund manager Richard Grodin. Mr. Grodin, who received a subpoena last fall, didn't return calls. An AMD spokesman declined to comment.

U.S. Pursues Sweeping Insider-Trading Probe - WSJ.com

Goldman's up for another nomination? and SAC ? Say it isn't true!!

This is a huge story! Janus now being investigated!! Check your 401ks slowlaners!

Trading Inquiry Widens to Big Firms

Federal authorities, intensifying an insider-trading investigation, are demanding trading and other information from some of the nation's most powerful investment firms.

Hedge-fund giants SAC Capital Advisors and Citadel LLC, big mutual-fund company Janus Capital Group Inc. and Wellington Management Co., one of the nation's biggest institutional-investment firms, have received subpoenas from the Manhattan U.S. Attorney's office seeking trading, communications and other data as part of a broad criminal investigation, according to people familiar with the matter.

The Federal Bureau of Investigation also recently questioned an account manager at Primary Global Research LLC, a California company that provides "expert-network" services to hedge funds and mutual funds, people familiar with the matter say.

Such expert-network firms set up meetings and arrange calls between traders seeking an investing edge and current and former managers from hundreds of companies. The FBI is seeking information about a Primary Global consultant and his hedge-fund clients, these people say.

Executives of Primary Global, based in Mountain View, Calif., didn't respond to requests for comment. Representatives of Wellington, Citadel and SAC, which is run by Steve Cohen, declined to comment. In a letter to investors, SAC said it received an "extraordinarily broad" subpoena, that it will cooperate with investigators, and that the request doesn't suggest that "anyone at SAC has engaged in wrongdoing." Janus said in a filing that it "intends to cooperate fully with that inquiry," which sought "general information." Janus shares fell 2.8% in Tuesday trading.

Subpoenas are requests for information and don't necessarily mean the recipients are suspected of wrongdoing.

The latest disclosures show that authorities are pursuing numerous strands in their three-year investigation. One focus is whether expert-network firms leaked inside information to hedge funds and others, according to people familiar with the matter. Another is whether independent consultants provided nonpublic information to investors, these people say.

SAC, Wellington, Janus and Citadel were among the clients of John Kinnucan, an analyst who recently was questioned by two FBI agents. The agents visited Mr. Kinnucan last month and accused him and his clients of trading on inside information, according to an email Mr. Kinnucan sent to about 20 clients. The FBI asked him to tape his calls with SAC, according to a person close to the situation. In his email, Mr. Kinnucan said he refused to tape any calls.

Still another strand of the probe is examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.

On Oct. 26, the day after the FBI visited Mr. Kinnucan, agents visited the Primary Global account manager at his home, people familiar with the matter say.

FBI agent B.J. Kang, who was involved in last year's Galleon Group insider-trading case, asked most of the questions, which focused on an expert in the semiconductor industry who consulted for clients of Primary Global and several other expert-network firms, these people say.

The manager was asked about the firm's work with the expert, his pay and Primary Global guidelines regarding sharing proprietary, nonpublic information with clients, these people say. Mr. Kang declined to comment.

Primary Global's compliance policies, posted on its website, say experts "are required to keep in confidence proprietary information acquired by them," and must not "breach any agreement with their employers" by working as consultants or sharing prohibited information.

One challenge for expert-network firms is policing their consultants. Such firms hire current or former company employees, as well as doctors and other specialists, to share information with investment funds.

The consultants typically earn several hundred dollars an hour for their services, which can include meetings or phone calls with traders to discuss developments in their company or industry. The expert-network companies say internal policies bar their consultants from disclosing confidential information. But because there are so many calls and meetings with investment funds, not all are monitored, according to executives at expert-network companies.

It isn't the first time authorities have examined whether individuals working for expert-network firms have passed along inside information. The SEC and the New York Attorney General's office examined the activities of Gerson Lehrman Group, the largest expert-network firm, following a Wall Street Journal article on the company in late 2006. Both probes were dropped with no charges brought.

Those probes prompted a number of expert-network firms to beef up compliance rules, such as requiring experts to sign agreements saying they have their employers' permission to act as consultants, and saying they won't share material, nonpublic information with clients.

Executives of expert-network firms and others say such rules can't stop consultants from sharing prohibited information on private phone calls, either purposely or accidentally, when a client pressures them.

Attempts to get consent from consultants and clients to record phone calls, which some say would be a strong deterrent to problematic behavior, have fallen flat, people in the industry say.

"Clients have generally said they didn't want that," says Stuart Lewtan, who runs Zintro Inc, a small Waltham, Mass., expert-network firm. "These are people who generally operate in a pretty secretive way. Even if they're complying with SEC regulations, they generally just don't like to be recorded."

The current investigation has caused some hedge funds to cancel calls with experts, while others are going ahead with calls after reviewing compliance procedures with the analysts involved, lawyers and others say.

"In the short term, clients are going to be very nervous about using expert-network firms," said Michael Mayhew, head of Integrity Research Associates, a New York firm that tracks the industry and collects fees for helping investors select expert-network firms.

After news of the investigation broke on the Journal website on Friday night, some hedge funds reached out to clients to reassure them that they didn't rely on expert networks.

Vijai Mohan, founder of hedge fund Hyphen Partners LP in San Francisco, sent a letter to his investors over the weekend saying: "Hyphen purposely uses no 'expert networks,' and relies on publicly available information to draw its conclusions."

Trading Inquiry Widens to Big Firms - WSJ.com

Thanks for sharing!

More arrests made. Apple and Flextronics are two of the companies involved with insider information leaks...




Apple? Uh oh!!

heh heh


stay tuned to ur favorite ocd loony for more fun fun fun!