Huffpost Business

Hedge Fund Employees Allegedly Part Of 'Tight-Knit Circle Of Greed'

Posted: Updated:
U.S. Attorney Preet Bharara speaks during a news conference, Wednesday, Jan. 18, 2012 in New York. A hedge fund co-founder, four financial analysts and a Dell Inc. employee teamed up in a record-setting insider trading scheme that netted more than $61.8 million in illegal profits based on trades of a single stock, authorities said Wednesday.
U.S. Attorney Preet Bharara speaks during a news conference, Wednesday, Jan. 18, 2012 in New York. A hedge fund co-founder, four financial analysts and a Dell Inc. employee teamed up in a record-setting insider trading scheme that netted more than $61.8 million in illegal profits based on trades of a single stock, authorities said Wednesday.

Federal prosecutors have arrested seven hedge fund workers, alleging that they were part of a "tight-knit circle of greed" that took home nearly $78 million in illegal profits.

The scheme included one $53 million trade -- the largest transaction ever to lead to a Manhattan prosecution -- and came mostly from tips from one employee at Dell. The arrests are the latest in a recent government crackdown on insider trading. Four men were charged with conspiracy to commit securities fraud, among other charges, while three analysts who were charged in other documents, have already plead guilty and are cooperating with the government.

The claim, "describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information," Preet Bharara, the United States Attorney for the Southern District of New York said according to prepared remarks. "It was a club where everyone scratched everyone else's back."

The probe is part of a larger continuing investigation that resulted in the arrest and recent conviction of Galleon hedge fund founder Raj Rajaratnam on 14 counts of securities fraud and conspiracy. Rajaratnam is currently serving an 11-year prison sentence and was ordered in November to pay a record $92.8 million in a related civil case.

Though prosecutors are touting the recent arrests as part of their "continuing efforts to ensure fair play on Wall Street," a November report found that federal prosecution of financial crimes was on track to fall to a 20-year low. The report compiled Justice Department data obtained through a Freedom of Information Act request and found that 2011's low level of prosecutions is the continuation of a trend spanning more than a decade.

One explanation for the drop in prosecutions could be a boost in deferred prosecution agreements, which allow companies to voluntarily report their own misconduct and sidestep harsher punishments in court. The Justice Department and the Securities and Exchange Commission have adopted deferred prosecution agreements in 2008, according to The New York Times.

The lack of prosecutions in the wake of the financial crisis has stoked anger among critics including the Occupy Wall Street movement. Government officials haven't successfully prosecuted a single Wall Street executive or financial firm for their role in the meltdown.

And it's pretty unlikely that financial executives will be prosecuted for their actions during the financial crisis going forward. A former top investigator told the Wall Street Journal last month that prosecution of financial executives is "better left to regulators" to take civil actions.

Around the Web

Federal Officials Charge Seven in Insider Probe - Wall Street Journal

Seven Charged in Insider Trading Probe - Bloomberg

7 charged in $78M record-setting inside trade case - Yahoo! Finance

More arrests in insider trading probe: sources - chicagotribune.com

U.S. charges 7 in $62 million Dell insider-trading case | Reuters

Government Makes Arrests In Insider Trading Probe : NPR

FBI Makes More Arrests in Insider Trading Probe | Fox Business