U.S. prosecutors: “smokescreen” shows traders guilt

NEW YORK (Reuters) – Three traders concocted a “smokescreen” to cover their tracks after conspiring to trade on leaked tips about pending mergers, prosecutors said on Wednesday as the government’s second major insider trading trial this year neared its end.

In his closing argument, Assistant U.S. Attorney Richard Tarlowe said alleged ringleader Zvi Goffer, 34, paid cash bribes to lawyers at Ropes & Gray to learn about what corporate deals the law firm was working on, to benefit his firm Incremental Capital LLC.

Tarlowe said co-defendants Emanuel Goffer, 32, and Michael Kimelman, 40, “absolutely” knew what Zvi Goffer, a former trader at Raj Rajaratnam’s Galleon Group before being fired, was doing. He urged a Manhattan federal jury to consider the men’s use of prepaid phones that they later destroyed.

These defendants had “an unfair and illegal advantage over ordinary investors” who had “no way of knowing what was going on behind closed doors at a law firm in New York,” Tarlowe said.

The government case relied heavily on evidence from wiretapped phone calls, often profane, that Tarlowe repeatedly said were “devastating” for the defense.

William Barzee, a lawyer for Zvi Goffer, countered in his summation that the government had not proven its case and had taken his client’s comments out of context.

“God forbid somebody finds themselves in the cross-hairs of the federal government,” he said. “They take absolutely innocent facts … and they twist it to fit their story.”

Lawyers for Emanuel Goffer and Kimelman also made closing arguments on Wednesday. U.S. District Judge Richard Sullivan is expected on Thursday to instruct jurors on the law, with deliberations to begin afterward.


Prosecutors said the alleged scheme involved tips on Bain Capital Partners LP’s and Huawei Technologies Co Ltd’s failed takeover of computer network equipment maker 3Com Corp, and private equity firm TPG Capital LP’s takeover of Canadian drug company Axcan Pharma Inc.

The Goffers, who are brothers, and Kimelman pleaded not guilty to securities fraud and conspiracy charges. Each faces as much as 25 years in prison if convicted.

Zvi Goffer did not put on a defense, while Emanuel Goffer and Kimelman put on brief defenses.

Their lawyers tried to show during cross-examinations that government witnesses were not credible, and to create doubt that people who leaked tips had a fiduciary duty not to do so, a key element of insider trading.

But Tarlowe said the scheme involved the purchase of put options, a bet a stock will fall, or preparation of research on a sector, to conceal interest in any one particular stock.

“You conceal because you know what you’re doing is wrong, and you don’t want to get caught,” Tarlowe said. “A smokescreen is not something legitimate,” he said.


The trial began on May 16, five days after a different Manhattan federal jury found Rajaratnam guilty on all 14 securities fraud and conspiracy charges in a separate insider trading trial.

Rajaratnam could face up to 19-1/2 years in prison, according to sentencing guidelines cited by prosecutors.

He is the most prominent defendant in a wide-ranging insider trading crackdown in which roughly 50 people have been charged. More than three dozen have pleaded guilty, and Rajaratnam is so far the only one convicted at trial.

Four witnesses who pleaded guilty and cooperated with prosecutors testified against the Goffers and Kimelman.

Tarlowe cited one phone call in which Goffer was said to be pleased that bribes had helped fund a respective honeymoon and kitchen renovations for Brien Santarlas and Arthur Cutillo, former Ropes & Gray lawyers who pleaded guilty in the case.

“I’m responsible for a honeymoon and a kitchen,” Zvi Goffer was heard saying on the wiretap. “God bless.”

Wednesday’s summations came as jury selection began in the same courthouse in the insider trading trial of Winifred Jiau, a former consultant at Primary Global Research LLC.

Expert networking firms such as Primary Global use consultants to match industry experts with money managers. About 13 people have been charged in that part of the insider trading probe. Eight have pleaded guilty. Jiau pleaded not guilty, and is the first to go to trial.

The case is U.S. v. Goffer et al, U.S. District Court, Southern District of New York, No. 10-00056.