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Securities Law

The Feds Were Listening: Wiretaps Led to Arrest of Billionaire Hedge Fund Manager

Posted Oct 19, 2009 9:02 AM CDT
By Debra Cassens Weiss

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Government wiretaps captured the conversations of billionaire hedge fund manager Raj Rajaratnam, arrested along with five other hedge fund operators and money managers last week in an alleged $20 million insider trading scheme.

Court-authorized wiretaps have never been used to target significant insider trading on Wall Street, the San Jose Mercury News reports. An unnamed former employee of Rajaratnam’s hedge fund, the Galleon Group, helped make the wiretaps and is a cooperating witness, according to the New York Times.

“Even now, after the discovery of Bernard L. Madoff, the scheme outlined by law enforcement officials is the stuff of Wall Street thrillers, not seen since the days of Ivan Boesky two decades ago,” the Times reports. “Rajaratnam is accused of tapping a vast network of informants across a swath of corporate America: a senior official at I.B.M. considered a contender for the top job at that firm; executives of Intel and the consulting firm McKinsey & Company; two former Bear Stearns employees who had moved to a hedge fund, New Castle Partners; and an analyst at Moody’s Investors Service.”

U.S. Attorney Preet Bharara announced the arrests on Friday. "This case should serve as a wake-up call to Wall Street and to every hedge-fund manager," Bharara said. "These people were privy to inside information, but they didn't know one secret, that we were listening."

The Mercury News says court documents reveal an ambitious plot and “thickening paranoia.” One defendant, portfolio manager Danielle Chiesi of the New Castle hedge fund, had this to say on tape: "I'm dead if this leaks. … And my career is over. I'll be like Martha [expletive] Stewart."

Rajaratnam's lawyer, James Walden of Gibson, Dunn & Crutcher, told the Times his client is innocent and “we’re going to fight the charges.”

The Am Law Daily listed the defense lawyers that have been hired so far.

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