WASHINGTON — Secret, court-approved wiretaps put in place more than two years ago are now being used by prosecutors in a widening inquiry of securities fraud and insider trading involving hedge funds and consultants that provide industry research, according to court documents and interviews with people close to the investigations.
The wiretaps were originally part of an insider trading investigation of the New York hedge fund Galleon Group. Those wiretaps, which involved the phones of at least seven individuals, potentially provided prosecutors with a vast array of new evidence for use in the latest investigations. Only four of the seven wiretap targets have been identified in court papers that have been made public so far in the Galleon case.
The expanded use of the secret wiretaps in the new inquiries was revealed last week by the United States attorney in Manhattan when the Federal Bureau of Investigation arrested Don Ching Trang Chu, a consultant at Primary Global Research, on securities fraud and conspiracy charges.
Expert networking firms, like Primary Global, which seek to link corporate executives or industry insiders with investment managers, have grown rapidly in recent years as securities regulators have cracked down on the ways that company managers can tell Wall Street stock analysts about corporate developments.
The case involving Mr. Chu relied on information gathered in one of the seven wiretaps set up in the Galleon investigation, according to court documents. The Galleon case, which began after insider-trading charges were filed against its founder, Raj Rajaratnam, in October 2009, was the first insider trading case to rely on wiretaps. It has so far resulted in criminal charges against 23 people and more than a dozen guilty pleas.
A federal judge allowed the use of the wiretapped conversations in the Galleon prosecutions last week. As a result, the secret wiretaps are likely to be used to bring more cases related to the expert-network firms, say people close to the investigation, who spoke on the condition of anonymity because the investigation was still unfolding. The trove of wiretap recordings include conversations involving at least 550 people.
Those wiretaps are in addition to recordings made by several targets of the Galleon insider trading investigations who agreed to cooperate with law enforcement by wearing recording devices after prosecutors confronted them with allegations of their participation in the insider trading schemes.
In the new investigation, three hedge funds were raided by the F.B.I. last week and several other money management companies received subpoenas or requests for information. Preet Bharara, the United States attorney for the Southern District of New York, said last week that the investigation was continuing.
These hedge fund guys think they're untouchable - the new Al Capones.
It will be fantastic to see some of them go to jail for their crimes.
And if one or two of these wiretap investigations puts an ed deformer or two behind bars, so much the better.
Better look out, Geoffrey!
You're guy might be going down with those wiretaps.