Subject: U.S. in Vast Insider Trading Probe
From: "Eric Schwerin" <[email-masked]>
To: "Hunter Biden" <[email-masked]>, "Devon Archer" <[email-masked]>
Date: Sat, 20 Nov 2010 10:48:44 -0500

U.S. in Vast Insider Trading Probe
By SUSAN PULLIAM<http://online.wsj.com/search/term.html?KEYWORDS=SUSAN+PULLIAM&bylinesearch=true>
, MICHAEL ROTHFELD<http://online.wsj.com/search/term.html?KEYWORDS=MICHAEL+ROTHFELD&bylinesearch=true>
,JENNY STRASBURG<http://online.wsj.com/search/term.html?KEYWORDS=JENNY+STRASBURG&bylinesearch=true>
 and GREGORY ZUCKERMAN<http://online.wsj.com/search/term.html?KEYWORDS=GREGORY+ZUCKERMAN&bylinesearch=true>

Federal authorities, capping a three-year investigation, are preparing
insider-trading charges that could ensnare consultants, investment bankers,
hedge-fund and mutual-fund traders and analysts across the nation, according
to people familiar with the matter.

View Full Image

The criminal and civil probes, which authorities say could eclipse the
impact on the financial industry of any previous such investigation, are
examining whether multiple insider-trading rings reaped illegal profits
totaling tens of millions of dollars, the people say. Some charges could be
brought before year-end, they say.

The investigations, if they bear fruit, have the potential to expose a
culture of pervasive insider trading in U.S. financial markets, including
new ways non-public information is passed to traders through experts tied to
specific industries or companies, federal authorities say.

One focus of the criminal investigation is examining whether nonpublic
information was passed along by independent analysts and consultants who
work for companies that provide "expert network" services to hedge funds and
mutual funds. These companies set up meetings and calls with current and
former managers from hundreds of companies for traders seeking an investing
edge.
On the Inside

*The New Age of Insider Information on Wall Street.*

More from the series:

   - *THE MOLE: Wired on Wall Street: Trader Betrays a
Friend<http://online.wsj.com/article/SB10001424052748703657604575005043589755402.html>
    *
   *Jan. 16, 2010*
   - *SWAP TALK: Trader's 'Nice Little Kiss' Tests Reach of
Regulators<http://online.wsj.com/article/SB10001424052702304739104575154093942234242.html>
    *
   *Mar. 31, 2010*
   - *THE PITS: Wild Trading in Metals Puts Fund Manager in Cross
Hairs<http://online.wsj.com/article/SB10001424052748704289504575312452485699806.html>
    *
   *Aug. 20, 2010*
   - *DEBT CLASH: Bankruptcy Court Is Latest Battleground for
Traders<http://online.wsj.com/article/SB10001424052748703309704575413643530508422.html>
    *
   *Sept. 7, 2010*
   - *CAPITOL GAINS: Congress Staffers Gain From Trading in
Stocks<http://online.wsj.com/article/SB10001424052748703431604575522434188603198.html>
    *
   *Oct. 11, 2010*

Among the expert networks whose consultants are being examined, the people
say, is Primary Global Research LLC, a Mountain View, Calif., firm that
connects experts with investors seeking information in the technology,
health-care and other industries. "I have no comment on that," said Phani
Kumar Saripella, Primary Global's chief operating officer. Primary's chief
executive and chief operating officers previously worked at
Intel<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=INTC>Corp.,
according to its website.

In another aspect of the probes, prosecutors and regulators are examining
whether Goldman Sachs
Group<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=GS>
Inc.
bankers leaked information about transactions, including health-care
mergers, in ways that benefited certain investors, the people say. Goldman
declined to comment.

Independent analysts and research boutiques also are being examined. John
Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an
email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of
a visit by the Federal Bureau of Investigation.

"Today two fresh faced eager beavers from the FBI showed up unannounced
(obviously) on my doorstep thoroughly convinced that my clients have been
trading on copious inside information," the email said. "(They obviously
have been recording my cell phone conversations for quite some time, with
what motivation I have no idea.) We obviously beg to differ, so have
therefore declined the young gentleman's gracious offer to wear a wire and
therefore ensnare you in their devious web."

The email, which Mr. Kinnucan confirms writing, was addressed to traders at,
among others: hedge-fund firms SAC Capital Advisors LP and Citadel Asset
Management, and mutual-fund firms Janus Capital
Group<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=JNS>,
Wellington Management Co. and MFS Investment Management. SAC, Wellington and
MFS declined to comment; Janus and Citadel didn't immediately comment. It
isn't known whether clients are under investigation for their business with
Mr. Kinnucan.

The investigations have been conducted by federal prosecutors in New York,
the FBI and the Securities and Exchange Commission. Representatives of the
Manhattan U.S. Attorney's office, the FBI and the SEC declined to comment.

Another aspect of the probe is an examination of whether traders at a number
of hedge funds and trading firms, including First New York Securities LLC,
improperly gained nonpublic information about pending health-care,
technology and other merger deals, according to the people familiar with the
matter.

Some traders at First New York, a 250-person trading firm, profited by
anticipating health-care and other mergers unveiled in 2009, people familiar
with the firm say.

A First New York spokesman said: "We are one of more than three dozen firms
that have been asked by regulators to provide general information in a
widespread inquiry; we have cooperated fully." He added: "We stand behind
our traders and our systems and policies in place that ensure full
regulatory compliance."

Key parts of the probes are at a late stage. A federal grand jury in New
York has heard evidence, say people familiar with the matter. But as with
all investigations that aren't completed, it's unclear what specific
charges, if any, might be brought.

Expert-network firms hire current or former company employees, as well as
doctors and other specialists, to be consultants to funds making investment
decisions. More than a third of institutional investment-management firms
use expert networks, according to a late-2009 survey by Integrity Research
Associates LLC in New York.The action is an outgrowth of a focus on insider
trading by Preet Bharara, the Manhattan U.S. Attorney. In an October speech,
Mr. Bharara said the area is a "top criminal priority" for his office,
adding: "Illegal insider trading is rampant and may even be on the rise."
Mr. Bharara declined to comment.

The consultants typically earn several hundred dollars an hour for their
services, which can include meetings or phone calls with traders to discuss
developments in their company or industry. The expert-network companies say
internal policies bar their consultants from disclosing confidential
information.

Generally, inside traders profit by buying stocks of acquisition targets
before deals are announced and selling after the targets' shares rise in
value.

The SEC has been investigating potential leaks on takeover deals going back
to at least 2007 amid an explosion of deals leading up to the financial
crisis. The SEC sent subpoenas last fall to more than 30 hedge funds and
other investors.

Today two fresh faced eager beavers from the FBI showed up unannounced
(obviously) on my doorstep thoroughly convinced that my clients have been
trading on copious inside information.... We obviously beg to differ, so
have therefore declined the young gentleman's gracious offer to wear a wire
and therefore ensnare you in their devious web.John Kinnucan, of Broadband
Research, in an Oct. 26 email to clients

Some subpoenas were related to trading in Schering-Plough Corp. stock before
its takeover by Merck & Co. in 2009, say people familiar with the matter.
Schering-Plough stock rose 8% the trading day before the deal plan was
announced and 14% the day of the announcement. Merck said it "has a
long-standing practice of fully cooperating with any regulatory inquiries
and has explicit policies prohibiting the sharing of confidential
information about the company and its potential partners."

Transactions being focused on include MedImmune Inc.'s takeover by
AstraZeneca Plc in 2007, the people say. MedImmune shares jumped 18% on Apr.
23, 2007, the day the deal was announced. A spokesman for AstraZeneca and
its MedImmune unit declined to comment.

Investigators are also examining the role of Goldman bankers in trading in
shares of Advanced Medical Optics Inc., which was taken over by Abbott
Laboratories in 2009, according to the people familiar with the matter.
Advanced Medical Optics's shares jumped 143% on Jan. 12, 2009, the day the
deal was announced. Goldman advised MedImmune and Advanced Medical Optics on
the deals.

A spokesman for AstraZeneca and its MedImmune unit declined to comment.

In subpoenas, the SEC has sought information about communications—related to
Schering-Plough and other deals—with Ziff Brothers, Jana Partners LLC,
TPG-Axon Capital Management, Prudential
Financial<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=PRU>
Inc.'s
Jennison Associates asset-management unit,
UBS<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=UBS>
AG's
UBS Financial Services Inc. unit, and Deutsche
Bank<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=DB>
AG,
according to subpoenas and the people familiar with the matter.

Representatives of Ziff Brothers, Jana, TPG-Axon, Jennison, UBS and Deutsche
Bank declined to comment.

Among hedge-fund managers whose trading in takeovers is a focus of the
criminal probe is Todd Deutsch, a top Wall Street trader who left Galleon
Group in 2008 to go out on his own, the people close to the situation say. A
spokesman for Mr. Deutsch, who has specialized in health-care and technology
stocks, declined to comment.

Prosecutors also are investigating whether some hedge-fund traders received
inside information about Advanced Micro
Devices<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=AMD>
Inc.,
which figured prominently in the government's insider-trading case last year
against Galleon Group hedge fund founder Raj Rajaratnam and 22 other
defendants.

Fourteen defendants have pleaded guilty in the Galleon case; Mr. Rajaratnam
has pleaded not guilty and is expected to go to trial in early 2011.

Among those whose AMD transactions have been scrutinized is hedge-fund
manager Richard Grodin. Mr. Grodin, who received a subpoena last fall,
didn't return calls. An AMD spokesman declined to comment.

*Write to *Susan Pulliam at [email-masked], Michael Rothfeld at
[email-masked], Jenny Strasburg at [email-masked] and
Gregory Zuckerman at [email-masked]
-- 
Eric D. Schwerin
Rosemont Seneca Partners
(202) 333-1880
[email-masked]