Insider trading case of 2007 led to Galleon

By Grant McCool

NEW YORK (BestGrowthStock) – The cooperation of two former hedge fund managers in a 2007 insider trading case led to the arrest of seven traders and lawyers last November in the wide-ranging Galleon prosecutions, a U.S. prosecutor said on Thursday.

During a sentencing proceeding for former Chelsey Capital hedge fund manager Mark Lenowitz in the 2007 case, Assistant U.S. Attorney Andrew Fish told the judge that Lenowitz’s cooperation led to the prosecution and cooperation of his onetime colleague at Chelsey Capital, David Slaine.

He said Slaine’s help to the FBI and U.S. prosecutors led to arrests and charges in the Galleon case against trader Zvi Goffer and six others last November 5. All seven pleaded not guilty to charges of conspiracy and securities fraud in Manhattan federal court on Tuesday.

Fish said in court on Thursday that Lenowitz’s cooperation was “one of the catalysts for Slaine’s cooperation that led to the additional arrests” of Goffer and the others.

Goffer’s attorney, Cynthia Monaco, declined to comment.

Meanwhile, Rajiv Goel, a former director of Intel Capital who was charged along with Galleon hedge fund founder Raj Rajaratnam last October 16, appears ready to waive indictment and plead guilty, according to a court filing by U.S. prosecutors. Intel Capital is the venture capital arm of Intel Corp.

Goel’s lawyer, David Zornow, declined to comment. Goel was scheduled to appear in court on February 8.

Goel would be the ninth guilty plea among 21 individuals facing criminal or civil charges in the probe that shook Wall Street and Silicon Valley and marked new ground in white collar crime with investigators’ use of wiretaps to gather evidence.

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The case drew wide attention because it involved a well-known hedge fund figure in Sri Lankan-born Rajaratnam and employees of some of America’s best-known companies, including International Business Machines Corp and McKinsey & Co management consultants.

Stock traders, lawyers, fund manager and executives were accused of trading on tips about forthcoming mergers and acquisitions in mostly tech stocks. Prosecutors said that in the insider trading networks, trading took place in shares of Google Inc (Read more about Google Stock Analysis), Sun MicroSystems, Advanced Micro Devices, Polycom Inc, Hilton Hotels Corp, Intel Corp, Clearwire, Akamai Technologies Inc, Atheros Communications Inc and IBM, among others.

U.S. District Judge Sidney Stein sentenced Lenowitz to six months of home confinement followed by three years of supervision and 160 hours of community service per year. Lenowitz pleaded guilty to conspiracy and securities fraud.

When Lenowitz was charged and pleaded guilty in 2007, he was among 13 people accused in a complicated case involving inside information from UBS AG’s UBS Securities LLC affiliate and Morgan Stanley from 2001 to 2006. Former employees of Bank of America Corp and Bear Stearns Co Inc were also criminally charged.

Slaine was added to the UBS case and pleaded guilty in December 2009 under an agreement to cooperate with the government, the Manhattan U.S. Attorney’s office announced on Tuesday. Slaine’s sentencing date is June 25.

A central figure in the 2007 insider trading ring was former UBS Research Executive Mitchel Guttenberg. He gave tips on future upgrades and downgrades in UBS analyst’s securities recommendations to another Chelsey Capital employee, Erik Franklin, who shared it with Slaine and Lenowitz.

Franklin also cooperated with investigators and was sentenced to three years probation. Guttenberg received a sentence of 6-1/2 years imprisonment in November 2008.

The cases are USA v Lenowitz, U.S. District Court for the Southern District of New York, No. 07-416; USA v. Goffer et al, U.S. District Court for the Southern District of New York, No. 10-056 and USA v Raj Rajaratnam et al, No. 09-01184

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(Reporting by Grant McCool, editing by John Wallace and Maureen Bavdek)

Insider trading case of 2007 led to Galleon