MANHATTAN (CN) – After three traders’ convictions Monday morning, the U.S. Attorney’s Office announced that every defendant arrested in the Galleon hedge fund investigation has been taken to task for securities fraud.
On Monday morning, a federal jury convicted Zvi Goffer, Emanuel Goffer and Michael Kimelman of all charges of securities fraud and conspiracy, closing an investigation that took down hedge fund billionaire Raj Rajaratnam in mid-May.
“With today’s guilty verdicts, each and every one of the defendants originally arrested in the Galleon insider trading investigation now stands convicted,” Manhattan U.S. Attorney Preet Bharara said in a statement.
While Rajaratnam masterminded the conspiracy at large, prosecutors say that former Galleon trader Zvi Goffer also headed a sizable scheme within this network.
Nicknamed “Octopussy” for getting his tentacles into multiple sources of information, Zvi earned millions by paying two former lawyers with the Ropes & Gray firm, Arthur Cutillo and Brien Santarlas, for inside information about several mergers and acquisitions of public companies like 3Com Corporation and Axcan Pharma, the jury found.
Zvi’s brother Emanuel and a third co-conspirator Kimelman were also found guilty of receiving and placing trades based on these tips.
Another attorney, Jason Goldfarb, also pleaded guilty to his role in the scheme.
Kimelman rejected a plea for probation before trial, saying he was convinced the jury would find him innocent, according to court documents. Now he, like his co-conspirators, faces 25 years in prison. They will be sentenced in late September and early October.
In a phone interview, Pace University law professor Bennett Gershman said the Goffer case was “far more insidious” and “dirtier” than the more publicized case against Rajaratnam.
“What I see here is you have the involvement of several prominent law firms and lawyers,” Gershman told Courthouse News. “You have bribed payments for information, which you didn’t have in the Rajaratnam case.”
Gershman noted that drug and mob investigations have exposed lawyers in the past, such as defense attorney Robert Simels, who was sentenced to 14 years after notoriously telling a government informant posing as an assassin to “neutralize” and “eliminate” witnesses against his client.
Still, Gershman says he never heard of lawyers being so deeply involved in any insider-trading case.
Bharara hailed the jury’s findings.
“Zvi Goffer may have had a reputation in the hedge fund world for being ubiquitous, but today he, along with his brother Emanuel and Michael Kimelman, discovered they are not above the law,” Bharara said in the statement. “Since this case was first brought by this office, our prosecutions have been responsible for dismantling elaborate networks of corrupt executives who gamed the system, exploited their access to proprietary information, shirked their ethical responsibilities, and violated the law with impunity.”
Gershman said the effectiveness of the Galleon prosecutions lies in the willingness of prosecutors to use law-enforcement techniques – such as wiretaps – that traditionally have been reserved for mob and drug investigations. Juries for the Rajaratnam and Goffer case relied on government wiretaps during their deliberations.
“They could be as fabulously successful in routing out this kind of corruption,” Gershman said, drawing the comparison to mafia and drug trials. “I think this has been a big wake-up call to Wall Street, and they’re going to do a little bit of housecleaning.”