stock tips

DealBook: U.S. Is Set to Charge Major Executive in Trading Case

October 26, 2011 by NewsMaker Leave a Comment

Seokyong Lee/Bloomberg NewsRajat K. Gupta, a former director of Goldman Sachs.

9:02 p.m. | Updated

Federal prosecutors are expected to file criminal charges on Wednesday against Rajat K. Gupta, the most prominent business executive ensnared in an aggressive insider trading investigation, according to people briefed on the case.

The case against Mr. Gupta, 62, who is expected to surrender to F.B.I. agents on Wednesday, would extend the reach of the government’s inquiry into America’s most prestigious corporate boardrooms. Most of the defendants charged with insider trading over the last two years have plied their trade exclusively on Wall Street.

The charges would also mean a stunning fall from grace of a trusted adviser to political leaders and chief executives of the world’s most celebrated companies.

A former director of Goldman Sachs and Procter Gamble and the longtime head of McKinsey Company, the elite consulting firm, Mr. Gupta has been under investigation over whether he leaked corporate secrets to Raj Rajaratnam, the hedge fund manager who was sentenced this month to 11 years in prison for trading on illegal stock tips.

While there has been no indication yet that Mr. Gupta profited directly from the information he passed to Mr. Rajaratnam, securities laws prohibit company insiders from divulging corporate secrets to those who then profit from them.

The case against Mr. Gupta, who lives in Westport, Conn., would tie up a major loose end in the long-running investigation of Mr. Rajaratnam’s hedge fund, the Galleon Group. Yet federal authorities continue their campaign to ferret out insider trading on multiple fronts. This month, for example, a Denver-based hedge fund manager and a chemist at the Food and Drug Administration pleaded guilty to such charges.

A spokeswoman for the United States attorney in Manhattan declined to comment.

Gary P. Naftalis, a lawyer for Mr. Gupta, said in a statement: “The facts demonstrate that Mr. Gupta is an innocent man and that he acted with honesty and integrity.”

Mr. Gupta, in his role at the helm of McKinsey, was a trusted adviser to business leaders including Jeffrey R. Immelt, of General Electric, and Henry R. Kravis, of the private equity firm Kohlberg Kravis Roberts Company. A native of Kolkata, India, and a graduate of the Harvard Business School, Mr. Gupta has also been a philanthropist, serving as a senior adviser to the Bill Melinda Gates Foundation. Mr. Gupta also served as a special adviser to the United Nations.

His name emerged just a week before Mr. Rajaratnam’s trial in March, when the Securities and Exchange Commission filed an administrative proceeding against him. The agency accused Mr. Gupta of passing confidential information about Goldman Sachs and Procter Gamble to Mr. Rajaratnam, who then traded on the news.

The details were explosive. Authorities said Mr. Gupta gave Mr. Rajaratnam advanced word of Warren E. Buffett’s $5 billion investment in Goldman Sachs during the darkest days of the financial crisis in addition to other sensitive information affecting the company’s share price.

At the time, federal prosecutors named Mr. Gupta a co-conspirator of Mr. Rajaratnam, but they never charged him. Still, his presence loomed large at Mr. Rajaratnam’s trial. Lloyd C. Blankfein, the chief executive of Goldman, testified about Mr. Gupta’s role on the board and the secrets he was privy to, including earnings details and the bank’s strategic deliberations.

The legal odyssey leading to charges against Mr. Gupta could serve as a case study in law school criminal procedure class. He fought the S.E.C.’s civil action, which would have been heard before an administrative judge. Mr. Gupta argued that the proceeding denied him of his constitutional right to a jury trial and treated him differently than the other Mr. Rajaratnam-related defendants, all of whom the agency sued in federal court.

Mr. Gupta prevailed, and the S.E.C. dropped its case in August, but it maintained the right to bring an action in federal court. The agency is expected to file a new, parallel civil case against Mr. Gupta as well. It is unclear what has changed since the S.E.C. dropped its case in August.

An S.E.C. spokesman declined to comment.

The case could be a challenge for the government. Many of the defendants convicted of insider trading, including Mr. Rajaratnam, have been caught on wiretaps swapping secret information.

At Mr. Rajaratnam’s trial, the government played a recorded conversation between Mr. Gupta and Mr. Rajaratnam in July 2008. On that call, Mr. Gupta divulged that Goldman was considering a purchase of either Wachovia or American International Group.

Evidence that Mr. Rajaratnam traded on this information was never presented, however.

Two of the most incriminating calls played in court pertained to tips that the government said had come from Mr. Gupta. But those calls were conversations between Mr. Rajaratnam and his employees, which could make them inadmissible in a trial of Mr. Gupta.

In one call played for the jury, Mr. Rajaratnam told a colleague, “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.” In the other, Mr. Rajaratnam said to his trader, “I got a call saying something good is going to happen to Goldman.”

The S.E.C.’s original case also outlined evidence that could potentially be used at trial. That includes Mr. Gupta’s phone records of on Sept. 23, 2008. That day, the Goldman board met via telephone to consider Mr. Buffett’s $5 billion investment in Goldman.

“Immediately after disconnecting from the board call, Gupta called Rajaratnam from the same line,” the S.E.C. filing says. A minute later, Galleon funds bought more than 175,000 shares of Goldman just before the market closed, the agency says, and later netted a $900,000 profit when the deal was announced.

Though he had an enviable résumé and earned millions of dollars a year at McKinsey, Mr. Gupta became fixated on the extraordinary wealth showered on hedge fund managers and private equity chiefs, according to trial testimony. Consultants are well paid, but the compensation pales in comparison to those Wall Street titans.

Around the time of his retirement in 2007, he and Mr. Rajaratnam helped start New Silk Route, a private equity firm focused on investments in India. Though Mr. Rajaratnam never had an active role in the firm, he and Mr. Gupta were good friends, having met through their philanthropic interests.

Mr. Gupta periodically visited Mr. Rajaratnam’s hedge fund, Galleon, on Madison Avenue and 57th Street in Midtown Manhattan. The two would order Indian or Chinese takeout and kibitz in Mr. Rajaratnam’s office. Mr. Gupta became an investor in Galleon’s hedge funds.

As part of his foray into Wall Street, Mr. Gupta took a senior adviser post at K.K.R., the firm co-founded by his friend Mr. Kravis. During Mr. Rajaratnam’s trial, prosecutors played a tape of the hedge fund manager gossiping with a friend about Mr. Gupta’s ambitions.

“My analysis of the situation is he’s enamored with Kravis, and I think he wants to be in that circle,” Mr. Rajaratnam said. “That’s a billionaire circle, right?”

William K. Rashbaum contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=721bde38bac9de1d51e16a8eda4937a6

Filed Under: Business News Tagged With: corporate boardrooms, mckinsey company, stock tips

DealBook: A Busy Day For Insider Trading Cases

September 1, 2011 by NewsMaker Leave a Comment

From left, Norbert Von Der Groeben/Reuters; Lucas Jackson/Reuters; Frank Franklin II/Associated PressFrom left, James Fleishman of Primary Global Research, Zvi Goffer, a former hedge fund trader at the Galleon Group, and Craig Drimal, a former hedge fund trader and cohort of Mr. Goffer.

The last week of the summer is supposed to be a slow time on Wall Street. Not so on the white-collar crime beat.

Wednesday was busy at the Federal District Court in Manhattan, the epicenter of the government’s crackdown on insider trading at hedge funds. Here’s a roundup:

James Fleishman
The trial of James Fleishman, a former salesman at Primary Global Research, started in Judge Jed S. Rakoff’s courtroom. Federal prosecutors have charged Mr. Fleishman, 42, with knowingly orchestrating the passing of illegal stock tips from employees at publicly traded companies to hedge fund traders.

“If you know tomorrow’s news today, you can make money, big money,” said the federal prosecutor, Antonia M. Apps, in her opening, according to Reuters. (If the line sounds familiar, that’s because it was also used by her colleagues who tried Raj Rajaratnam, the convicted hedge fund billionaire who ran Galleon Group.)

As expected, Mr. Fleishman’s lawyer argued that his client did not know that he was arranging calls and meetings during which corporate secrets were discussed and later traded upon.

“Mr. Fleishman did his job honestly and honorably,” said his lawyer, Jay Nelson, according to the Reuters report. “Mr. Fleishman believed that these consultations were proper and appropriate, and that they were what made P.G.R. a good business.”

Zvi Goffer
A lawyer for Zvi Goffer, a former hedge fund trader at the Galleon Group, filed a brief asking a judge for leniency at his sentencing, which is set for October. In June, a jury convicted Mr. Goffer of trading on illegal stock tips about corporate mergers.

The nonbinding federal sentencing guidelines call for a sentence of 10 to 12 and a half years. His lawyer, William Barzee, said a sentence of about six years would be more appropriate.

“The arrogant swagger of 2007 has been replaced with an honest humility in 2011,” Mr. Barzee said of his client.

As part of the filing, Mr. Goffer, 34, included a letter from himself. He promised that he would not appeal his conviction, settle a civil case brought against him by the Securities and Exchange Commission and agree to a permanent ban from the securities industry. He also said he would repay his illegal trading profits.

“I stand before the court today a humbled man who in many respects is not the same brash, reckless, irresponsible man who committed these crimes,” he wrote in the letter. “I will use this opportunity to become a better son, a better husband and a better father.”

Mr. Goffer, who said he experienced “shame, self-loathing and depression” after his arrest, is married with two young sons. He discussed his career as a hedge fund trader:

When I got into the business of trading stocks I was in my late twenties. I was a reckless and immature young man who thought the rules did not apply to me. My heroes were people like David Slaine, Craig Drimal and Raj Rajaratnam. Men who made millions of dollars in a “day’s work.” I wanted to be just like them, and an erroneous lesson I learned early on was that in order to get ahead on Wall Street you had to be willing to “get an edge.” And the truth is, I was all too eager to get that edge. I was willing to go to great lengths, even grossly illegal lengths, to get an edge. Pride and greed were my constant companions. I was lost.

Craig Drimal
A federal judge sentenced Craig Drimal, a former hedge fund trader and cohort of Mr. Goffer, to five and a half years in prison. Mr. Drimal, 55, pleaded guilty in April to trading on illegal stock tips from corporate lawyers while working in Galleon’s offices. The prison term meted out by Judge Richard Sullivan was squarely in the middle of the range suggested by the sentencing guidelines.

“I understand I’ve committed a crime and I deserve to pay the price,” Mr. Drimal said before the sentencing, according to a Bloomberg News report. In addition to the sentence, Judge Sullivan ordered Mr. Drimal to forfeit $11 million in illegal trading profit. The majority of his tips came from two former corporate lawyers at Ropes Gray who have both pleaded guilty.

Anthony Scolaro
The S.E.C. settled a civil insider trading lawsuit against Anthony Scolaro, a former trader at Diamondback Capital Management. In November, Mr. Scolaro pleaded guilty in a related criminal case.

On Wednesday, Mr. Scolaro agreed to forfeit about $140,000 in illegal profit and pay a $63,000 penalty to resolve his role in the case. He also accepted a permanent ban from the securities industry. The S.E.C. said he traded on an illegal tip about a takeover of Axcan Pharma in 2007 that came from the aforementioned former Ropes Gray lawyers.

As part of the settlement, Diamondback agreed to disgorge about $1 million in principal and interest, according to the S.E.C., an amount representing the firm’s profit from Mr. Scolaro’s illegal trading. Diamondback, whose offices were raided late last year by agents from the Federal Bureau of Investigation, has not been accused of any wrongdoing. The hedge fund told investors on Wednesday that the firm, and not its investors, would pay for the settlement.

Article source: http://feeds.nytimes.com/click.phdo?i=1a2a67b3e31989549a8eaad54b3d7baa

Filed Under: Business News Tagged With: leniency, slow time, stock tips

DealBook: Goldman Fined $10 Million for Tips Sent to Big Clients

June 10, 2011 by NewsMaker Leave a Comment

Daniel Acker/Bloomberg News

Stock research has long been considered a big money loser on Wall Street. It costs millions to produce and most investors are unwilling to pay hard cash for it. But in 2006 Goldman Sachs came up with a plan to leverage its equity research, funneling short-term stock tips to its biggest trading clients.

On Thursday, Massachusetts regulators fined Goldman Sachs $10 million for this practice, calling it “a dishonest and unethical violation” of the state’s securities act.

“We verified that there was a preference of some customers at the expense of others,” William F. Galvin, the state’s chief financial regulator, said in an interview.

These tips were the product of meetings known as trading huddles between Goldman’s stock analysts and traders. At these gatherings, attended by client and proprietary traders, research analysts would identify stocks they thought were likely to rise or fall because of coming earnings announcements, the direction of the overall market or other short-term developments. Some of their recommendations differed from ratings printed in Goldman’s widely circulated long-term reports.

After the meetings, Goldman analysts would call some of the firm’s biggest clients and give them these short-term views. The company has said these tips were nothing more than “market color” and did not go beyond what was said in Goldman’s published research. Goldman did not disclose the existence of these trading huddles in its published research, and critics complained that the limited distribution of certain ideas was unfair to those clients who were not given the same information.

As part of the settlement with Massachusetts regulators, Goldman agreed to halt its trading huddles. A Goldman spokesman said the firm was “pleased to have resolved this matter with the Massachusetts Securities Division.”

Separately, the Financial Industry Regulatory Authority,  Wall Street’s self-policing organization, is close to concluding its investigation into Goldman’s trading huddles, according to a person close to the investigation who was not authorized to speak on the record.

Stock research has long been a staple on Wall Street. Big companies that do business with firms like Goldman like to be covered because it helps increase their profile with investors. And retail investors like to read stock reports. Research is typically sold as part of “soft dollar” arrangements — a common practice in which investors obtain analysis in return for placing their trades through the firm’s brokerage desk. But there is usually a big shortfall, and over the years firms have struggled to turn stock research into a moneymaker.

In 2003, 10 firms including Goldman agreed to pay a $1.4 billion settlement to resolve accusations that Wall Street firms had been issuing overly optimistic stock research to win more lucrative investment banking business. The settlement, in which the firms did not admit or deny wrongdoing, erected walls between research and investment banking. It also stopped the subsidization of research by banking revenue.

A consent order issued Thursday by Mr. Galvin on the Goldman trading huddles painted a picture of a firm desperate to find new sources of revenue after the 2003 settlement. By delivering short-term stock tips to its top clients, Goldman hoped to increase its trading revenue. One Goldman staff member referred to the firm’s client roster as “living, breathing lists for Goldman to monetize.”

And Goldman’s research department set out to do just that. “The commercial value of these calls in the form of more revenue to GS from this set of clients is being measure and it’s very substantial,” wrote one unnamed business unit leader in research, according to the complaint. “In general we have seen about a 50 percent rise in revenue.”

The list of clients getting tips was constantly subject to change, the consent order says. “If one client on the list isn’t giving us the incremental revenue we’re expecting, we rotate in another one,” wrote another unnamed employee. Mr. Galvin said

Goldman’s system of prioritizing clients left some Massachusetts pension funds and smaller mutual funds at a disadvantage.

Trading huddles proved profitable for the firm. A November 2008 internal e-mail showed that of 115 accounts, 77 percent had “an increase in touches” after the start of the program. Of those accounts, 51 percent reported an increase in revenue.

Mr. Galvin said his regulators also concluded that many of the stock tips had come just in advance of formal rating changes and “there was a benefit to knowing ahead that things were about to change.”

Article source: http://feeds.nytimes.com/click.phdo?i=25f076bfd6f104cb73c8189ed7e8a901

Filed Under: Business News Tagged With: securities act, stock tips, term developments

DealBook: Ex-SAC Trader Calls Defendant’s Insider Tips ‘Perfect’

June 7, 2011 by NewsMaker Leave a Comment

Michael C. York for The New York TimesWinifred Jiau insisted on gifts of lobster, Noah Freeman testified.

8:07 p.m. | Updated

Winifred Jiau, a Silicon Valley technology worker, was known to most of her peers as Winnie.

But across the country on Wall Street, three young, successful hedge fund traders nicknamed her “the Poohster,” a not-so-subtle reference to the fictional bear.

On Monday, one of those hedge fund traders, Noah Freeman, testified that “the Poohster” provided him and two friends with “absolutely perfect” information about coming earnings announcements from technology companies.

Ms. Jiau is on trial in Federal District Court in Manhattan on charges of passing secret corporate information to Mr. Freeman and others. She is a former consultant at Primary Global Research, a so-called expert network firm that connects Wall Street traders to industry experts, including public company employees. These firms are a focus of the government’s vast investigation into insider trading at hedge funds.

If convicted, Ms. Jiau faces up to 25 years in prison.

Mr. Freeman is a main cooperating witness in the case against Ms. Jiau. He not only gave the government information about Ms. Jiau that led to her arrest, but also provided the authorities with evidence that led to the conviction of his two fellow traders and former friends, Donald Longueuil and Samir Barai. The three traders have all pleaded guilty to insider trading crimes.

A former trader at Sonar Capital and SAC Capital Advisors, Mr. Freeman said that he and his co-conspirators paid Ms. Jiau about $120,000 a year for illegal stock tips that earned him and his funds tens of millions of dollars in trading profits. Ms. Jiau, a former employee at Taiwan Semiconductor and Nvidia, had deep contacts inside a number of semiconductor companies.

Still, “despite her information being very, very accurate, she was very difficult to work with,” said Mr. Freeman, 35, a Harvard graduate. Neither of his former employers has been accused of any wrongdoing.

Among the issues he said that he had with Ms. Jiau: she could be rude, she was hard to contact and she often canceled meetings at the last minute. But a focus of his testimony Monday was on Ms. Jiau’s persnickety behavior regarding the gifts that Mr. Freeman and his co-conspirators lavished on her.

In addition to the cash compensation, Mr. Freeman gave Ms. Jiau presents, including three iPhones. He also said the traders bought her a gift certificate to a clothing boutique “that we canceled at her request and replaced with a $300 gift certificate to the Cheesecake Factory.”

And then there were the lobsters. In November 2007, Ms. Jiau asked Mr. Freeman, who was based in Boston, for 12 lobsters. She wanted to serve them on Thanksgiving.

“I remember this because it was an unusual time to serve lobsters,” said Mr. Freeman, who mentioned that he had a family home in Maine.

A prosecutor then showed Mr. Freeman an e-mail that he had sent to his secretary with the subject line, “Can you please send lobsters to Winnie?”

“I know you hate her but we have to do this,” he wrote.

“Sure thing,” the secretary, Annie Gallin, replied. “I hope she gets sick from the lobsters.”

“Me too (but not dying, just suffering),” Mr. Freeman responded.

Ms. Gallin dutifully sent a dozen lobsters from the Fresh Lobster Company in Gloucester, Mass., across the country to Ms. Jiau, who lives in Fremont, Calif. But there was a slight problem.

“Typical Winnie to leave 12 lobsters to die at FedEx,” Ms. Gallin wrote in a follow-up e-mail. “She has no heart.”

She did, however, like to serve lobster on the holidays. The next month, Ms. Jiau asked for another dozen lobsters for Christmas, a request with which Mr. Freeman dutifully complied.

In his testimony, Mr. Freeman also said he circumvented compliance rules at SAC Capital that prohibit its traders from talking to employees of public companies when he struck a compensation arrangement with Ms. Jiau.

The news that SAC had a specific ban against discussions with public company employees comes amid a flurry of negative headlines about the hedge fund. Federal authorities are investigating trading by Steven A. Cohen, the billionaire investor who heads the fund, as well as the fund’s trading surrounding a number of large mergers-and-acquisitions announcements.

Mr. Freeman also testified that SAC terminated him in January 2010 because of poor performance. “My financial results were not as good as they expected them to be,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=d9b237d758d95fdae585c2a5efcea598

Filed Under: Business News Tagged With: earnings announcements, sac capital advisors, stock tips

DealBook: A Trader, an F.B.I. Witness, and Then a Suicide

June 3, 2011 by NewsMaker Leave a Comment

Brian Snyder/ReutersAgents in Boston last fall conducting one of three simultaneous raids on large hedge funds.

In a Manhattan courtroom last week, federal prosecutors played for a jury a secretly recorded telephone conversation between two Wall Street traders exchanging stock tips.

Two days later, one of those traders, Ephraim G. Karpel, hanged himself in his Fifth Avenue office, according to a law enforcement official.

Mr. Karpel was never charged with any wrongdoing, and until last week his name had not emerged in connection with the government’s vast investigation of insider trading.

Yet while working for a New York commodities firm, he had agreed in 2008 to cooperate with federal authorities, and for about a year he taped conversations with fellow traders, according to two people with direct knowledge of the matter who insisted on anonymity to discuss it.

“The government’s investigation changed his life forever and was his unraveling,” Fran Karpel, his wife, said in a telephone interview from her home in Livingston, N.J. “He sank deeper and deeper into a hole and couldn’t see a way out.”

Federal prosecutors’ increasingly aggressive and public stance in pursuing insider trading has led to headline-grabbing convictions and stepped-up compliance procedures at hedge funds.

But behind the scenes, the government’s hardball investigative tactics — using surveillance, pressuring witnesses and raiding offices — have also spawned a culture of fear on Wall Street and affected the lives of many who have not been accused of any crimes.

Whether the investigation played a role in Mr. Karpel’s death cannot be known. He had been depressed after losing his job, his wife said, and other factors may have contributed.

But according to Ms. Karpel, his death at age 50 came three years after a pair of agents from the Federal Bureau of Investigation approached him outside the Applejack Diner, on the corner of 55th Street and Broadway. The agents took him inside the restaurant and, seated at a table toward the back, told him they had evidence of his involvement in an insider trading network.

The government’s supposed evidence included a telephone conversation between Mr. Karpel and Zvi Goffer, a trader whose phone the F.B.I. had tapped.

On the call, recorded on Dec. 31, 2007, Mr. Karpel told Mr. Goffer that the drugstore chain Walgreens had made an offer to acquire Matria Healthcare.

“I’ve got the trade for the month of January for you,” Mr. Karpel said, according to a transcript of the call. “It’s coming from a banker.”

That call was one of more than 20 wiretapped conversations played during Mr. Goffer’s two-month trial, which is now in jury deliberations.

The Walgreens deal never happened, but the recorded conversation led federal authorities to approach Mr. Karpel and seek his help in building insider trading cases. It is unclear how investigators thought that Mr. Karpel could help them.

“Ephraim was a very popular guy and knew a lot of people,” his wife said. “He always called it a fishing expedition.”

Indeed, Mr. Karpel had many Wall Street connections. He worked for 18 years at Mutual Shares, an investment firm run by the fund manager Michael F. Price, rising to the position of head trader. Mr. Karpel then left Mutual Shares to work as an analyst, a job he considered more cerebral and respectable.

He developed an expertise in metals and mining stocks. After a stint at P. Schoenfeld Asset Management, Mr. Karpel joined Tigris Financial Group, a commodities firm run by the investor Thomas S. Kaplan.

None of Mr. Karpel’s former employers has been accused of any wrongdoing.

Over the past two years, the United States attorney’s office in Manhattan, which has led the federal investigative effort in this area, has charged 49 people with insider trading crimes. Thirty-nine of them have pleaded guilty or been convicted by a jury, including Raj Rajaratnam, the billionaire hedge fund manager.

But the federal authorities’ techniques have rarely been seen on Wall Street before.

Late last year, F.B.I. agents conducted three simultaneous raids of large hedge funds. Two of those funds have since closed. And for the first time in an insider trading inquiry, the government has been using wiretaps — a method typically reserved for drug crimes and organized crime cases — to record the telephone conversations of Wall Street traders.

In one instance, the government came under official criticism for its wiretap practices. Earlier this year, Judge Richard J. Sullivan rebuked law enforcement officials for monitoring an intimate call between a trader and his wife, a conversation that was not germane to the trader’s case.

“The court is deeply troubled by this unnecessary, and apparently voyeuristic, intrusion,” wrote Judge Sullivan, a federal judge in Manhattan.

It was wiretaps that led the F.B.I. to confront Mr. Karpel on the street.

After the encounter, Mr. Karpel retained Daniel R. Alonso, then a partner at the law firm Kaye Scholer, who advised Mr. Karpel to cooperate with the government.

Mr. Alonso, now the chief assistant district attorney for Manhattan, would neither confirm nor deny that he had represented Mr. Karpel, citing legal ethics rules. Representatives of the F.B.I. and the United States attorney in Manhattan declined to comment.

Ms. Karpel said Mr. Alonso had counseled her and her husband to keep Mr. Karpel’s cooperation with the government quiet.

“Our lawyer said, ‘You can only discuss this with me, your rabbi or your therapist,’ ” Ms. Karpel said. “We didn’t have therapists and we belonged to a synagogue but didn’t want to talk to our rabbi, so we kept it a secret from everyone, even our family.”

“We were terrified,” Ms. Karpel added. “We had nobody to turn to.”

Ms. Karpel said her husband had been in horribly conflicted about his cooperation. She said he had been so worried about entrapping his friends that he began cutting himself off from Wall Street contacts.

By mid-2009, the F.B.I. began to lose interest in Mr. Karpel, according to his wife, and stopped asking for his help.

Around that time, however, his employer, Tigris, learned of his involvement in the investigation, according to a firm spokesman. Tigris dismissed him, but he continued to work with the company as an outside consultant until his death.

In recent months, Mr. Karpel had been in talks to join Javelin Partners, a fledgling Toronto firm that advises small mining companies. He never joined the firm but had been subleasing space at Javelin’s New York office on lower Fifth Avenue, which is where he was found.

After he lost his job at Tigris he became very depressed, Ms. Karpel said.

“He loved Wall Street and he loved his friends there,” she said. “He felt like he had to reinvent himself.”

Article source: http://feeds.nytimes.com/click.phdo?i=d1a1409b7a71abff86add8e23c72ae5e

Filed Under: Business News Tagged With: federal authorities, federal prosecutors, stock tips

DealBook: Morgan Stanley Is Expected to Be a Focus at Galleon Trial

March 28, 2011 by NewsMaker Leave a Comment

Goldman Sachs had the starring role last week in the insider trading trial of Raj Rajaratnam when its chief executive, Lloyd C. Blankfein, testified about a former Goldman director who had possibly leaked confidential information to Mr. Rajaratnam.

Next up, Morgan Stanley.

Adam Smith, a former portfolio manager at the Galleon Group, the hedge fund Mr. Rajaratnam ran, is expected to take the witness stand as soon as Monday and tell the jury that he obtained illegal tips about merger deals from a Morgan Stanley investment banker. Then, Mr. Smith is expected to say, he and Mr. Rajaratnam earned substantial profits by trading on the information.

Mr. Smith pleaded guilty in January to insider trading and is cooperating with the government. He will be the first former Galleon employee to testify in the trial in Federal District Court in Manhattan, which begins its fourth week on Monday. His testimony is expected to illuminate the culture inside Galleon, which was one of the world’s largest and most powerful hedge funds before Mr. Rajaratnam’s arrest in October 2009.

Galleon, which focused on technology stocks, practiced the so-called mosaic theory of stock investing, which relies on analysts to ferret out data about companies by aggressively pressing sources for information to build a mosaic about those companies and gain an investment edge.

Mr. Smith, in effect, has admitted that pieces of his mosaics came from illegal stock tips.

A graduate of Harvard College and Harvard Business School, Mr. Smith, 38, was an investment banker in Morgan Stanley’s Silicon Valley office before joining Galleon in 2003. Galleon was a perfect fit for Mr. Smith, who specialized in the technology industry and preferred the fast-moving trading culture of a hedge fund to the slower-paced world of investment banking.

A popular figure on the trading floor with a keen sense of humor, Mr. Smith thrived at Galleon, which at its height managed $7 billion. Mr. Rajaratnam took to Mr. Smith early on and gave him his own pool of money to manage, according to two people who had been close to him and would speak only on the condition of anonymity. At his peak, Mr. Smith controlled about $250 million.

In his best years, he earned several million dollars annually. He was among the firm’s hardest workers, taking frequent trips to Asia to visit sources and production facilities.

Mr. Smith has also admitted to obtaining the confidential financial results of two technology companies — Intersil and Nvidia — from employees at those companies and then trading on the information in advance of their quarterly earnings announcement.

His relationship with a former Morgan Stanley colleague, Kamal Ahmed, is expected to be a focus of his testimony. Mr. Ahmed is a Morgan Stanley managing director who is said to have provided Mr. Smith with information about pending deals, including Integrated Device Technology’s acquisition of Integrated Circuit Systems in 2005 and Advanced Micro Devices’ purchase of ATI Technologies the next year.

Earlier in the trial, the government played a secretly recorded telephone call from 2008 in which Mr. Smith tells Mr. Rajaratnam about a potential sale involving Vishay Intertechnology. Mr. Smith says, “Listen, ah, I talked to Kamal last night” and explains that Morgan Stanley had tried to win the assignment to sell Vishay but that another bank “got the mandate.” He then says that he is going to buy some Vishay stock.

On the call, Mr. Rajaratnam asks Mr. Smith how the market is treating him and Mr. Smith responds: “Like a baby treats a diaper.”

Morgan Stanley has placed Mr. Ahmed on administrative leave. Doug Tween, a lawyer for Mr. Ahmed, said his client was cooperating and “we remain confident that he did nothing illegal or improper.”

Mr. Rajaratnam’s lawyers are expected to portray Mr. Smith as untrustworthy and to argue that he is testifying in return for a lenient prison sentence.

Just weeks before the trial began, prosecutors also tried to use Mr. Smith to gather information on Ian Horowitz, Mr. Rajaratnam’s personal trader at Galleon. On Jan. 14, after he began cooperating with the government, Mr. Smith made three secretly recorded calls to Mr. Horowitz in which he tried to elicit evidence of insider trading from him.

At the end of the third call, Mr. Horowitz, who has not been charged with any wrongdoing, said to Mr. Smith: “The questions you are asking me are like you are tapping me on the phone trying to get me to say some things.”

“Are you serious?” said Mr. Smith, denying that he was recording their call. “Dude, come on.”

Article source: http://feeds.nytimes.com/click.phdo?i=bd9096e141da6c7fe90335de0631631c

Filed Under: Business News Tagged With: galleon group, mr smith, stock tips