the takedown

Feds Bring Down Largest Insider Trading Ring Yet

After seven years of dogged pursuit, the U. S. government infiltrated and unraveled one of the hardest-to-detect criminal rings–insider trading among Wall Street elite who ultimately paid $1.94 billion in individual fines.

New York federal prosecutors handed out 91 convictions and collected nearly $2 billion in fines from top executives and hedge funds who got tips from insiders that gave them a trading edge in the market. The most sought-after information was that involving tech companies and drug trials.

The payoff was almost too much to resist. Roomy Khan, a former executive at Intel made $50 million while working as a financial trader.

Some traders were found to have paid cash to their tipsters while others paid facilitators to act as middlemen and connect both parties.

The vast and intricate web of insiders, traders, and facilitators existing in whispers, phone calls, and behind closed doors were nearly impossible to catch and convict. For the FBI, however, this set up was all too familiar. By adopting similar tactics used to bring down mobsters and narcoterrorists, the FBI infiltrated the rings with wiretaps and informants until they worked their way to the top.

In 2009, the FBI discovered a smaller insider-trading ring in Silicon Valley’s headed up by Karl Motey. The FBI convinced Motey to work with them and had him get in touch with expert networking firm, Primary Global Research where they found a wealth of consultants who eagerly supplied insider information at a price.

Once the FBI convinced PGR consultants to also cooperate, the path led to numerous hedge funds including SAC Capital. SAC was ultimately convicted and labeled “a veritable market for cheaters” by prosecutors. SAC pled guilty, agreeing to pay $1.8 billion, the largest insider-trading penalty in history.

Those who cooperated avoided prison time and were hit with a fine or probation. Those who chose not to cooperate served an average 34-month prison term on top of fines.

Convictions produced a record-setting $1.94 billion in fines from those who cooperated and those who did not. Of that, SAC Capital paid $1.8 billion.

Posted in The Takedown

Tags: DOJ, federal prosecutors, DOD , insider trading, hedge funds

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