The Wall Street Journal reported this that Federal Authorities are wrapping up a three-year investigation into insider trading that looks set to ensnare some industry big fish. The probe has the “potential to expose a culture of pervasive insider trading in the US financial markets” according to federal authorities.Today, the Feds stepped up the heat and are beginning the next stage of the process.
The Wall Street Journal is reporting this afternoon that the FBI has raided three hedge funds today so far today. Two of the firms–Stamford-based Diamondback Capital Management and Greenwich-based Level Global Investors–have direct ties to SAC Capital, prompting Barry Ritholtz to question whether Federal Authorities are gunning for the big kahuna. The third is Boston-based Loch Capital, where the FBI has had three cars parked outside for several hours this afternoon.
One major prong in the investigations is the use of so-called Expert Networks by Wall investment firms, hedge funds and mutual funds. In Expert Networks, Wall Street firms put former employees of companies on staff to provide special “expertise” into those companies or industries. These consultants typically earn several hundred dollars an hour for their unique services, and the practice amounts to insider trading on a massive scale.
Another aspect of the investigation focuses on whether investment bankers from Goldman Sachs Group, Inc. (NYSE:GS) leaked information about transactions to select investors. Specifically, investigators are looking in to several healthcare deals on which Goldman advised. While we point out two of the most prominent headlines thus far, the probe is expected to have many layers and involve many players. More visits are expected to be paid over the next several weeks.
Sources:
US in Vast Insider Trading Probe
Susan Pulliam, Michael Rothfeld, Jenny Strasburg, and Gregory Zuckerman
Wall Street Journal, November 20, 2010
http://online.wsj.com/article/SB10001424052748704170404575624831742191288.html
FBI Raids Three Hedge Funds Amid Insider Trading Case
Susan Pulliam, Jenny Strasburg, and Michael Rothfeld
Wall Street Journal, November 22, 2010
http://online.wsj.com/article/SB10001424052748704243904575630693960704872.html?mod=WSJ_hp_LEFTTopStories
