- Associated Press - Wednesday, January 18, 2012

NEW YORK — Authorities on Wednesday unveiled a nearly $78 million insider trading case that involved at least seven financial industry professionals and included a hedge fund co-founder who triggered a single trade that earned $53 million in profits, the largest lone transaction ever prosecuted in Manhattan.

“Today’s charges illustrate something that should disturb all of us: They show that insider trading activity in recent times has, indeed, been rampant and routine, and that this criminal behavior was known, encouraged and exploited by authority figures in several investment funds,” U.S. Attorney Preet Bharara told a news conference.

He said nearly $62 million was earned through tips provided by a Dell Inc. employee to a former Dell worker who spread the information among his friends at, who worked at least five investment houses, including three hedge funds. He called it “a stunning portrait of organized corruption on a broad scale” and said it raised to 63 the number of people arrested in a government crackdown on insider trading. So far, there have been 56 convictions.

“Each wave of charges and arrests seems to produce leads to lead us to the next phase,” said FBI Assistant Director-in-Charge Janice K. Fedarcyk. She said the arrests were not the last in a 4-year-old probe dubbed “Operation Perfect Hedge.”


Mr. Bharara called the seven men arrested in the latest crackdown part of “a criminal club whose purpose was profit and whose members regularly bartered lucrative inside information.”

“It was a club where everyone scratched everyone else’s back,” he said. “The criminal complaint and three felony informations unsealed today paint a stunning portrait of organized corruption on a broad scale.”

The criminal complaint in U.S. District Court in Manhattan charged four of the men with conspiracy to commit securities fraud, among other charges. Three analysts charged in the other documents have already pleaded guilty and are cooperating with the government.

The insider trading plot was noteworthy for its size. Last month, hedge fund founder Raj Rajaratnam began serving an 11-year prison term — the longest ever given in an insider trading case — for a scheme that prosecutors said produced as much as $75 million in profits on dozens of trades over a multiyear period. That prosecution resulted in more than two dozen convictions and led to a spinoff probe that produced even more arrests.

Mr. Bharara said the case he announced Wednesday was comparable to the one brought against Rajaratnam. He highlighted its size, saying the co-conspirators netted more than $61.8 million in illegal profits based on trades of a single stock from 2008 through 2009. The Securities and Exchange Commission said the profits, combined with $15.7 million earned on trades involving Nvidia Corp., reached nearly $78 million.

SEC Enforcement Director Robert Khuzami said it was disturbing that the case involved high level executives at “some of the largest and most sophisticated hedge funds in the country.”

He said there was nothing wrong with fast-trading hedge funds but they are already characterized by a lack of transparency and can pose a “grave threat to the integrity of the markets and the level playing field that is the foundation of those markets” when they use their considerable market power to influence those who possess inside information.

The SEC said the case involved closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP.

AP writers Mark Pratt and Marcy Gordon contributed to this report.