October 17, 2009 3:00 am
Billionaire investor Raj Rajaratnam and present and former executives of Bear Stearns, IBM, Intel and McKinsey were charged yesterday in an alleged insider trading scheme that US prosecutors called the biggest ever involving hedge funds.
In a possible sign of escalating federal efforts to uncover white collar crime, Preet Bharara, US attorney in Manhattan, said the case marked the first time court-authorised wire taps - a traditional tool of investigators pursuing mob bosses and drug kingpins - had been used in a significant insider trading case.
Mr Bharara said the investigation, aided by an unnamed co-operating witness, was continuing. He said the charges "should be a wake-up call for every hedge fund manager and every Wall Street trader and every corporate executive who is even thinking about engaging in insider trading".
Prosecutors claimed Mr Rajaratnam, founder of the Galleon hedge fund, and others used insider information from sources inside hedge funds, public companies, Moody's Investors Service and an investor relations firm to trade ahead of earnings announcements, acquisitions and joint venture deals.
The alleged scheme, which ran from 2006 until earlier this year, involved trades in companies including Google, IBM, Sun Microsystems and Hilton and produced profits of more than $20m, most of which went to Mr Rajaratnam, according to federal prosecutors. The Securities and Exchange Commission, which brought civil charges, put the proceeds of the scheme at more than $25m.
Among those charged with trading on and providing tips were Mr Rajaratnam; Danielle Chiesi, an employee of New Castle, a hedge fund set up by Bear; and Mark Kurland, a New Castle executive who formerly served as Bear's head of research and asset management.
Some alleged offences occurred after Bear - and New Castle - were acquired by JPMorgan Chase in March last year. New Castle, which faces civil charges filed by the SEC, was separated from JPMorgan in late 2008.
Among those charged with providing inside information were Robert Moffat, a senior vice-president at IBM; Rajiv Goel, a director in strategic investments at the investment arm of Intel; and Anil Kumar, a director at McKinsey.
Mr Kumar said he was shocked by the complaint and emphatically denied all charges.
Moody's said last night: "Moody's has strict policies against divulging confidential information, and the alleged wrongdoing by an individual at Moody's would be an egregious violation of Moody's policies and values."
Mr Rajaratnam was to fly to London yesterday, according to court documents, with a return flight to New York from Geneva scheduled for October 22.
Insider trading inquiry, Page 2
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