Wall Street greed sets new record after US insider dealing probe

Greed on Wall Street set a new record, US government authorities said, as they unveiled a massive insider trading case and charged a hedge fund co-founder with engineering a transaction that earned a staggering $53m (£34.4m) in profits.

The illegal trade – the largest transaction prosecuted in Manhattan – was part of a $78m (£50.6m) scheme involving at least seven financial industry professionals, said US Attorney Preet Bharara.

“Today’s charges illustrate something that should disturb all of us: they show that insider trading activity in recent times has, indeed, been rampant and routine and that this criminal behaviour was known, encouraged and exploited by authority figures in several investment funds,” Mr Bharara said.

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Of the $78m, nearly $62m (£40.2m) was earned through tips provided by a Dell employee to a former Dell worker who spread the information among his friends in at least five investment houses, including three hedge funds.

Mr Bharara called it “a stunning portrait of organised corruption on a broad scale” and said it raised to 63 the number of people arrested in a government crackdown on insider trading. So far, there have been 56 convictions.

“Each wave of charges and arrests seems to produce leads to lead us to the next phase,” said FBI assistant director-in-charge Janice Fedarcyk.

She said the arrests were not the last in a four-year-old probe dubbed Operation Perfect Hedge.

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“If you are engaged in insider trading, what distinguishes you from the dozens who have been charged is not that you haven’t been caught; it’s that you haven’t been caught yet,” she said.

The criminal complaint in US District Court in Manhattan charged four of the men with conspiracy to commit securities fraud and with securities fraud, among other charges.

Three analysts charged in the other documents have already pleaded guilty and are co-operating with the government.

The insider trading plot was noteworthy for its size. Last month, hedge fund founder Raj Rajaratnam began serving an 11-year prison term – the longest given in an insider trading case – for a scheme that prosecutors said produced as much as $75m (£48.7m) in profits on dozens of trades over several years. That prosecution resulted in more than two dozen convictions and led to a spin-off probe that produced even more arrests.

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The enforcement director for the US Securities and Exchange Commission, Robert Khuzami, said it was disturbing that the case involved high-level executives at “some of the largest and most sophisticated hedge funds in the country”.