NEW YORK — The Wall Street trader had engaged in the most widespread instance of “systemic corruption” the government had investigated.
The comment, made by the office of U.S. Attorney Rudolph Giuliani in 1987, came in the sentencing of Ivan Boesky, at the time the highest-profile defendant in what was the biggest insider-trading case the Justice Department had pursued. Prosecutors echoed those words in describing hedge- fund billionaire Raj Rajaratnam, who was convicted Wednesday on all 14 counts of conspiracy and securities fraud after a seven- week trial and 11 days of jury deliberation.
With Boesky, then one of the industry’s best-known traders, the government cracked an elite Wall Street clique that included junk-bond king Michael Milken. In contrast, Rajaratnam exploited a sprawling web of mostly lower-ranking underlings at hedge funds and technology companies in the U.S. and Asia. His conviction, while a victory for prosecutors, highlights the challenge they face in staying ahead of the growing ranks of people — fund analysts, product managers, finance employees — who are spread around the world and have access to inside information and the inclination to sell it.
“It’s not just in the hands of CEOs and CFOs anymore,” said Adam Wasserman, an attorney at Dechert LLP in New York who handles white-collar criminal and securities cases. “The government’s recent insider-trading prosecutions have shined a light on both the recent democratization and globalization of what is allegedly inside information.”
More than 40 people face criminal charges, civil lawsuits or have pleaded guilty in the government probe whose roots go back to 1998 when the FBI began investigating Roomy Khan, a former Intel product-marketing engineer. Khan, 52, sent Intel semiconductor-pricing and sales data to Rajaratnam’s Galleon Group, according to a criminal complaint. She later worked at the New York-based hedge fund.
Among those charged are Zvi Goffer, a 34-year-old day trader who made $378,608 after getting a tip that 3Com, a computer-networking firm based in Marlborough, Mass., would get acquired, the U.S. Securities and Exchange Commission said in its complaint against him. Goffer, known as “Octopussy” for his multiple sources of information, has pleaded not guilty and awaits trial in May.
Manosha Karunatilaka, 37, a former U.S. account manager at Hsinchu, Taiwan-based Taiwan Semiconductor Manufacturing Co., was arrested in December for selling hedge funds production reports on the chipmaker’s 10 largest customers. He was paid $200 a call by Primary Global Research, an expert-network firm that provided access to company insiders for investors, according to a government complaint. He pleaded guilty.
“For any analyst or portfolio manager, information is more readily available now that the supply chain is predominantly global in nature,” said Peter Rup, chief investment officer of Artemis Wealth Advisors in New York, which allocates money to hedge funds for clients. “The dissemination of material information is beyond the reach and control of U.S. regulators.”
