Circle of Friends (45 page)

Richard Choo-Beng Lee
—Spherix Capital founder who traded insider information with Danielle Chiesi and was convicted of insider trading.

Dennis Levine
—A Drexel Burnham Lambert managing director who was convicted of securities fraud and was hit with criminal and civil charges.

Anthony “Tony” Longoria
—A supply-chain manager at AMD who moonlighted as an industry expert, selling inside secrets about the chipmaker.

Lyford Cay
—A Bear Stearns hedge fund that managed money for many of the investment bank's big-name clients and was involved in a major insider trading case.

Gerard Lynch
—Federal judge who authorized the use of wiretaps in the Rajaratnam insider trading case.

Bernard Madoff
—Convicted of perpetrating one of the biggest frauds in U.S. history.

David Makol
—One of the top FBI agents involved in Operation Perfect Hedge, considered an expert at flipping suspects and turning them into cooperators.

Henry Manne
—Author of
Insider Trading and the Stock Market,
Manne argues that insider trading doesn't harm investors and in fact leads to a more efficiently operating market since information is more readily priced into stocks.

David Markowitz
—A senior enforcement official at the SEC.

Mathew Martoma
—Former
SAC Capital Advisors
fund manager who was charged by the U.S. government for allegedly taking part in a massive insider trading scheme. Martoma says he's done nothing wrong.

James McDermott
—Former chief executive at Keefe, Bruyette & Woods who was convicted of sharing inside information with pornography star
Kathryn Gannon.

McKinsey & Co.
—Big New York–based management consultancy.

Andrew Michaelson
—An enforcement official at the SEC who worked on the Galleon case and would later join the Manhattan U.S. Attorney's office during the Rajaratnam prosecution.

Michael Milken
—Chief of the junk bond segment at Drexel Burnham Lambert, who was convicted of securities fraud.

Robert Moffat
—Former IBM executive who leaked insider tips to
Galleon Group
via
Danielle Chiesi.

NewCastle Partners
—A hedge fund giant, and Bear Stearns subsidiary, that employed numerous individuals ultimately linked to insider trading.

Todd Newman
—A portfolio manager at Diamondback Capital Management. Newman was convicted of insider trading.

James H. O'Hagan
—The central figure in an insider trading case that became the basis of modern insider trading law.

Ferdinand Pecora
—Flamboyant Depression-era prosecutor who led a high-profile investigation into the causes of the 1929 stock market crash.

Primary Global
—A now-defunct expert consultancy network and one of the key elements of the insider trading probe. Primary Global had hired a number of consultants who would be convicted of passing insider tips to hedge fund clients.

Raj Rajaratnam
—Founder of
Galleon Group
who was convicted of fourteen counts of securities-fraud-related crimes and was sentenced to eleven years in prison for insider trading.

Rengan Rajaratnam
—Hedge fund trader and brother of
Raj Rajaratnam
, who was charged with insider trading. The SEC's 2007 investigation into Rengan's hedge fund, Sedna Capital, led to the probe of Galleon.

Gary Rosenbach
—
Raj Rajaratnam'
s partner who ran the Galleon Group's trading desk.

Arthur Prentice Rugg
—Chief justice of the Supreme Judicial Court of Massachusetts who opined in one of the early insider trading cases.

Hector Ruiz
—AMD chairman who had close ties to
Danielle Chiesi.

SAC Capital Advisors
—A Stamford, Connecticut-based hedge fund headed by Steve Cohen that manages $14 billion in assets.

Mary Schapiro
—SEC chairman during the commission's insider trading crackdown.

Securities and Exchange Commission aka SEC
—Wall Street's “top cop,” or chief regulator, which was formed by Congress in the 1930s to stabilize markets and protect investors.

Deep Shah
—Provided
Roomy Kahn
with inside information on Blackstone's purchase of Hilton Hotels.

Walter Shimoon
—A former executive at Flextronics International who pleaded guilty to sharing insider secrets about the tech-supply-chain heavyweight to John Kinnucan.

Martin Siegel
—A Drexel Burnham Lambert managing director who was convicted of securities fraud during the 1980s insider trading crackdown.

David Slaine
—Former Morgan Stanley managing director and hedge fund trader who became one of the top cooperators during Operation Perfect Hedge.

Eliot Spitzer
—Former New York attorney general who was known for his hard-nosed approach to fighting white-collar crime.

Michael Steinberg
—
SAC Capital Advisors
money manager charged with trading on inside information. Steinberg says he's innocent.

Martha Stewart
—Home and lifestyle mogul who found herself ensnared in a high-profile insider trading case involving her friend, ImClone Systems founder Sam Waksal. Stewart was eventually convicted of lying to government investigators, but she was never charged with criminal insider trading.

Jon Streeter
—Assistant Manhattan U.S. attorney who led the prosecution in the
Raj Rajaratnam
insider trading case.

Sanjay Wadhwa
—Associate regional director for the SEC's New York office and one of the central figures in the Galleon probe, as well as the ongoing investigation into insider trading at other big hedge funds, such as SAC.

Sam Waksal
—Founder and former CEO of ImClone Systems, who was convicted of insider trading.

Doug Whitman
—Founder of asset management company Whitman Capital, who was convicted of insider trading in a Galleon-related case.

R. Foster Winans
—Former writer for the
Wall Street Journal
who was convicted of securities fraud for handing out pre-publication details of the market-moving column.

NOTES

“The pagination of this electronic edition does not match the edition from which it was created. To locate a specific entry, please use your e-book reader's search tools.”

In writing
Circle of Friends
I relied on a number of sources of information, such as court documents, SEC filings, and depositions, as well as interviews with government officials directly involved in the Perfect Hedge investigation, defense attorneys representing the key players involved in the case, and press representatives. Many (if not most) of these interviews, particularly with the government investigators on the front lines of the insider trading probes, occurred under the condition that the parties involved not be identified by name, for the obvious reason that even as this book goes to press, the investigation is continuing and such information is considered confidential.

In fact, one of the hurdles I needed to overcome is the confidentiality that involves any story about an ongoing civil and criminal investigation of the magnitude of Perfect Hedge, where people involved could be fined millions of dollars and spend years in prison. Needless to say, without relying on people who speak without attribution, neither this book nor the vast majority of what is considered investigative reporting would ever see the light of day.

That said, I have attempted to verify the key scenes in the book with the various players involved, through their representatives. Where there is a discrepancy over the facts, I have attempted to show both sides of the story. Every major character was asked to cooperate and given the opportunity to speak on a not-for-attribution basis. Steve Cohen, for instance, declined numerous requests to be interviewed for this book, but I have provided his representatives with a detailed account of what has been written and have added their comments when appropriate.

In developing a narrative about Cohen and SAC Capital Advisors, I have spoken to friends and former colleagues. I have reviewed court transcripts and other documents, as I have in developing the narratives of the other key characters including former Galleon chief Raj Rajaratnam, and David Slaine, one of the government's premier undercover witnesses in the investigation.

Much of the work in the book is a result of my reporting at the Fox Business Network, including an interview with former FBI agent Mark Rossini, who first alerted me to the size and scope of the probe and how, despite all the attention the press was giving other players like Raj Rajaratnam, a key target in the probe was actually SAC Capital, and Cohen.

As this book goes to press, Cohen has yet to be charged in either a civil or criminal case, though SAC itself has settled civil securities fraud charges with the SEC, in the usual fashion of neither admitting nor denying wrongdoing. A criminal investigation into SAC and Cohen himself continues, and as I have said numerous times while I've reported on these issues, Cohen is innocent until a jury proves he is guilty. It is not my intention to pass judgment, but merely to report on the activities of the government as they relate to Cohen and SAC, and give Cohen a fair hearing of his own.

I have also leaned on the reporting of several journalists who covered the insider trading scandals and the Perfect Hedge investigation. This includes the fine work of Susan Pulliam at the
Wall Street Journal,
Kaja Whitehouse at the
New York Post,
Peter Lattman at the
New York Times,
Matthew Goldstein and Jennifer Alban of Reuters, George Packer for his excellent profile of Preet Bharara in the
New Yorker,
and Roger Lowenstein's
New York Times
piece on insider trading, as well as various reporters at Bloomberg News for their aggressive coverage of the subject. The information I gleaned from these sources can be found in the following endnotes. Some of the material taken from these and other sources has been quoted directly with author attribution in the text because I believed a simple endnote was not sufficient in pointing out the exclusivity of the reporting.

INTRODUCTION

1
      Description of FBI's meeting with David Slaine from author interviews with government investigators directly involved in the investigation and various news accounts, including Susan Pulliam, “Wired on Wall Street: Trader Betrays a Friend,”
Wall Street Journal
, January 16, 2010.

2
      Description of how Slaine initially appeared on government's insider trading radar screen from author interviews with government officials, public documents such as the Securities and Exchange Commission's complaint against Slaine, and various news accounts including David Glovin and David Voreacos, “Dream Insider Informant Led FBI From Galleon to SAC,” Bloomberg, December 3, 2012.

3
      Size of the hedge fund business in 2007 of $2 trillion from Adrian Blundell-Wignall, “An Overview of Hedge Funds and Structured Products: Issues and Risk,” OECD.org, 2007.

3
      Slaine's job background from various news accounts.

4–5
  Background on David Chaves and David Makol from author interviews with people who know both men, as well as Susan Pulliam, Michael Rothfeld, and Jenny Strasberg, “The FBI Agent Who ‘Flips' Insider-Trading Witnesses,”
Wall Street Journal
, January 20, 2012.

6
      Slaine's decision to cooperate with the government and his attitude during meetings with the FBI from author interviews with various government investigators. Slaine's attorney would not deny the account.

7
      B. J. Kang approached Roomy Khan and turned her as a witness from author interviews with government officials, various news accounts, including George Packer, “A Dirty Business: New York's Top Prosecutor Takes On Wall Street Crime,”
New Yorker
, June 27, 2011.

8
      As many as nine former SAC employees implicated in insider trading cases so far and Steinberg's status as unindicted co-conspirator from Emily Flitter and Katya Wachtel, “Prosecutors Zero In on SAC Capital Insider Steinberg,” Reuters, February 6, 2013.

9
      FBI wiretapping Steve Cohen's telephone from author interviews with people close to the investigation.

11
    The significance of the securities acts of 1933 and 1934 from various news accounts including Roger Lowenstein, “The War on Insider Trading: Market-Beaters Beware,”
New York Times
, September 22, 2011.

17
    Amount of money Raj Rajaratnam made through illegal insider trading from various news accounts, including Peter Lattman, “Rajaratnam Gets 11 Years for Insider Trading,”
New York Times
, October 13, 2011; Kaja Whitehouse, “Raj to Judge: I Only Made $7 million,”
New York Post
, October 5, 2011.

CHAPTER 1: PERFECTLY LEGAL

21–22
  The travails of William Duer from various news accounts, including Steve Fraser, “Sex, Insider Trading and the First U.S. Financial Panic,” Bloomberg, December 9, 2011.

23
    Ulysses S. Grant's involvement in insider trading, “Black Friday, September 24, 1869,” PBS.org.

23
    Why President Roosevelt chose Joseph Kennedy as first chairman of the Securities and Exchange Commission and Roosevelt's quote about Kennedy from William D. Pederson,
Blackwell Companions to American History: Franklin D. Roosevelt
(New York: John Wiley & Sons, 2011).