The Galleon Saga Continues: Rap Songs, Octopussy and Insider Trading

More news continues to come out regarding the Galleon Group. The Wall St. Journal is reporting that Raj Rajaratnam’s

hedge fund is facing heavy investor withdrawals of approximately $1.3 billion (of the $3.7 billion in assets they manage) and is allowing monthly withdrawals. Reportedly the group has also moved to unload some of its technology stocks and other holdings to raise cash. This case has turned into one of the largest insider trading cases ever.

A rap song called, “Put Your Money on Galleon” was recently uncovered by the New York Post which Mr.Rajarantam had apparently commissioned. Here is the song:

In recent weeks the Wall St. Journal has reported that a series of individuals have been charged by prosecutors including lawyers, a former Moody’s Corp. analyst and the founder of a trading firm called Incremental Capital. Five others have also pleaded guilty. Here is a link to an interactive map of the growing tangled web of the different parties involved in the Galleon case. Specifically, the list of individuals charged include:

Zvi Goffer: The founder of Incremental Capital, Goffer worked at Galleon from January through August 2008 and worked at Schottenfeld Group for much of 2007. He was named the leader of the insider-trading ring busted Thursday. Nicknamed “Octopussy,” according tot he SEC.

Craig Drimal: Worked in Galleon’s office space, but not for the hedge fund. Drimal has been described as an “independent financial services professional” on his LinkedIn profile. He purchased 3Com Corp. stock, the complaint says.

Emanuel Goffer: He worked at Spectrum Trading from January through November 2007, and is currently employed at Incremental. He too acquired 3Com shares, according to the complaint.

David Plate: Currently employed at Incremental, Plate worked at Schottenfeld between June 2006 and March 2008. He allegedly purchased 3Com stock.

Deep Shah: A Moody’s analyst. Last month, federal prosecutors alleged the former junior analyst passed on inside information about Blackstone Group LP’s $26 billion takeover of Hilton Hotels before the deal was made public.

Ali Hariri: Currently serves as vice president of the broadband carrier networking business at Atheros Communications Inc. He has a master’s degree in electrical engineering from the University of Connecticut, according to Atheros’s Web site.

ATTORNEY’S CHARGED

Three attorney’s who have been charged include:

Arthur Cutillo: An intellectual property lawyer at Ropes & Gray. His biography has been removed from the firm’s site. He allegedly gave information to a lawyer friend, Jason Goldfarb. He reportedly attended Villanova University School of Law.

Jason Goldfarb: Goldfarb was an attorney who allegedly got information from Cutillo and allegedly passed it along to Goffer.

Michael Kimelman: Kimelman is currently associated with Incremental Capital. Also allegedly bought shares of 3Com, a networking-equipment maker.

GUILTY PLEAS:

The following five have already pleaded guilty, investigators say:

Roomy Khan: Tipster who investigators say touched off the recent insider-trading case involving the Galleon hedge-fund firm, one of the largest such cases in recent years. She is the aunt of a friend of Moody’s analyst Shah.  According to this link Ms. Khan has an interesting past including:

*Being convicted of wire fraud in 2001

*She was sued by her housekeeper (a case in which the judge suggested she fabricated evidence)

*She failed to pay a promissory note to Deutsche Bank

Steven Fortuna: Founder of Boston hedge-fund firm S2 Capital.

Gautham Shankar: A former proprietary trader at Schottenfeld Group (which according to this article has a history of spreading market rumors) who allegedly tipped Zvi Goffer and David Plate.

Ali Farr: Co-founder of California hedge-fund firm Spherix Capital.

Richard Choo Beng Lee: Co-founder of Spherix. Here is a link to his cooperation agreement with the US Department of Justice.

Here is an interesting video which discussed a Financial Times report that Galleon spent approximately $250 million in 2008 to receive so-called market color (i.e. – market information that would not have been disclosed to most investors):

IBM executive Robert Moffat (once thought to be the next CEO of the firm) has been placed on administrative leave as the investigation continues. Here is a nice summary of Anil Kumar’s background the McKinsey executive that was arrested:

Executives at Akami as well as  AMD’s former CEO Hector Ruiz (now Chairman of Globalfoundries) are also the subject of probes. Stay tuned as this saga continues to unfold….

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Tags: Due Diligence, Fraud, Operational Due Diligence, Operational Risk, Ponzi
Posted in Due Diligence, Hedge Fund Fraud, Hedge Fund Regulation, Operational Risk, Ponzi |