14 charged with insider trading

Arrests follow intense two-year investigation into Galleon hedge fund

NEW YORK -- The largest insider-trading case in a generation intensified on Thursday as federal authorities charged 14 people on Wall Street, including hedge fund executives, a lawyer and company insiders, with netting more than $20 million in illegal profits.

The latest charges stem from an investigation unveiled last month that resulted in criminal charges against billionaire Raj Rajaratnam, founder of the well-known hedge fund Galleon Group, and five others of accumulating $20 million in gains by trading on inside information about Google and other companies.

Federal authorities said they used some of their most powerful tools, including court-authorized wiretaps, during the two-year probe that led Thursday to the arrest of eight people. Among those arrested was Zvi Goffer, a former Galleon employee who operates a firm called Incremental Capital, and Craig Drimal, who worked inside Galleon's offices.

Authorities allege that Goffer orchestrated the scheme and paid insiders for tips on upcoming mergers and acquisitions. He is also accused of giving insiders prepaid cellular phones to avoid detection.

Federal prosecutors called the investigation the largest insider-trading case in history involving hedge funds. The case brings to mind the infamous Ivan Boesky episode of the 1980s, when the Wall Street player served nearly two years in prison and paid $100 million in fines for insider trading.

While insider-trading cases are as old as Wall Street itself, the seriousness with which federal prosecutors are approaching the matter may be an indication of law enforcement's response to the financial crisis. Recording phone conversations is more commonly used in federal investigations of organized crime or terrorism. The Justice Department and the Securities and Exchange Commission, which also filed civil charges against the defendants on Thursday, have been under pressure to bring high-profile cases linked to financial wrongdoing.

"If you're a wealthy trader, you aren't special," Preet Bharara, the top federal prosecutor in the Southern District of New York, said at a news conference Thursday. He said more cases may be coming.

"I urge you to come knocking on our door before we come knocking on yours," he added.

Federal prosecutors also arrested Arthur Cutillo, a lawyer at the law firm of Ropes & Gray; Jason Goldfarb, a lawyer (no relation to reporter); David Plate, Michael Kimelman and Emanuel Goffer, who currently work at Incremental Capital; and Ali Hariri, who works for Atheros Communications in California.

Another defendant, Deep Shah, who formerly worked for Moody's Investors Service and was charged in the earlier Rajaratnam case, has not been located by federal authorities.

Five other defendants were previously charged and have pleaded guilty in federal court in New York. One of these was Roomy Khan, a California trader who is cooperating with the government in the Rajaratnam case.

Most of the charges, which include fraud and conspiracy, carry five to 20 years of prison time.