US officials on Wednesday announced charges [text] against seven individuals purportedly involved in a $62 million insider trading scheme. The individuals, who worked for five different investment institutions, are accused of earning illegal profits on the basis of insider information regarding publicly traded companies, including Dell Inc. and NVIDIA. US Attorney for the Southern District of New York Preet Bharara [official profile] described the nature of the illegal conduct and expressed his intent to curb insider trading [press release, PDF]:
The charges unsealed today allege a corrupt circle of friends who formed a criminal club whose purpose was profit and whose members regularly bartered lucrative inside information so their respective funds could illegally profit. And profit they allegedly didto the tune of more than $61 million on illegal trades of a single stockmuch of it coming in a $53 million short trade. Here, The Big Short was The Big Illegal Short. We have demonstrated through our prosecutions that insider trading is rampant and has its own social network, a network we intend to dismantle. We will be unrelenting in our pursuit of those who think they are above the law.Janice Fedarcyk [official profile], Assistant Director-in-Charge of the New York Office of the FBI [official website] also condemned the alleged insider trading conspiracy [press release]. Three of the seven have already pleaded guilty to counts of securities fraud and conspiracy to commit securities fraud and are cooperating with the government. The men face potential penalties of five to 25 in prison and fines of $250,000 to $5 million.
US prosecutors and the FBI have targeted insider trading in the investment industry in recent years. Raj Rajaratnam, co-founder of the Galleon Group, was convicted of 14 counts of insider trading [JURIST report] in May and sentenced to 11 years in federal prison [JURIST report] in one of the largest hedge fund insider trading cases in US history. Several other defendants have pleaded guilty in connection with the case. Former hedge fund consultant Danielle Chiesi pleaded guilty [JURIST report] in January. Former IBM senior vice president Robert Moffat was sentenced to six months in prison in September 2010 and ordered him to pay a $50,000 fine for his role in the scheme after pleading guilty [JURIST reports] in March 2010. Former Intel Capital executive Rajiv Goel pleaded guilty [JURIST report] to insider trading charges in February 2010. Rajaratnam, Chiesi, Goel and Moffat were arrested in October 2009 and charged [complaint, PDF] along with two other individuals and two business entities with insider trading. The complaint alleged that the individuals provided Galleon Group and another hedge fund with material nonpublic information about several corporations upon which the funds traded, generating $25 million in illicit gain. Rajaratnam and Chiesi originally pleaded not guilty [JURIST report] in December 2009 after being indicted for insider trading.