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Galleon
hedge fund founder Raj Rajaratnam arrives at Manhattan Federal
Court in New
York May 10, 2011. (Credit: Reuters/Brendan McDermid)
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(Reuters) -
The FBI says it has enough informants lined up to keep its investigations of
suspected illegal insider trading at hedge funds going for at least five more
years.
In a
briefing on Monday with reporters at the New York office of the Federal Bureau
of Investigation just blocks away from Wall Street, agents who manage squads of
investigators likened the probes to penetrating a secret society.
The
investigations are building on a mission dubbed "Perfect Hedge" that
have led to the prosecutions of multimillionaire Galleon Group hedge fund
founder Raj Rajaratnam and dozens of traders, executives and research
consultants since late 2009.
"We
have cooperators set up for years to come," said David Chaves, a
supervisory special agent for securities and commodities fraud investigations.
He told
reporters that the informants include cooperating witnesses -- people who have
been identified as conducting illegal trading but who have agreed to assist
authorities to catch others in the hopes of receiving a lighter sentence -- and
sources within hedge funds.
"I
don't want to say it's infinite, but clearly in five years we think we will be
working it," Chaves said.
The Galleon
prosecution and other recent insider-trading cases have used secretly-recorded
telephone conversations to gather evidence, an investigatory tool traditionally
used in organized crime or narcotics cases.
The use of
wiretaps sent a chill through the hedge fund industry closed to outsiders and
what the FBI calls "undercover resistant."
Investigators
have tracked mobile phone calls, instant messaging and social media to collect
evidence.
The FBI
says it is alert to new ways in which people may try to exchange information on
publicly traded companies to gain an illegal edge.
"We
will go to whatever lengths we have to keep up with changes in
technology," said Richard Jacobs, another FBI supervisory special agent
for white-collar crime cases.
Both
officials emphasized that law enforcement believes that the overwhelming
majority of hedge funds and their traders are law-abiding and run their firms
responsibly.
A similar
briefing was given to reporters in Washington on Monday, where officials
discussed the agency's shift in focus of the past 10 years to financial fraud
cases involving larger amounts of money than in the past.
For
example, out of the 2,600 mortgage fraud investigations open nationally, 70
percent involve more than $1 million, compared with smaller bank frauds under
$25,000 that were previously typical of the caseload.
In New
York, the FBI said that to date, out of 64 arrests made in "Perfect
Hedge," 59 people have been convicted or have pleaded guilty. These
prosecutions, in partnership with the office of the Manhattan U.S. Attorney and
the U.S. Securities and Exchange Commission, have been an important deterrent,
the agents said.
Another
tool for deterrence is the publicity the cases have generated in the United
States and abroad.
To that
end, Michael Douglas, the Academy Award-winning star of the 1987 movie
"Wall Street," agreed to a request from the FBI to record a public
service announcement.
"In
the movie 'Wall Street' I played Gordon Gekko, who cheated to profit while
innocent investors lost their savings," Douglas, 67, says in the video
recording released on Monday.
"The
movie was fiction but the problem is real," Douglas says in the video.
"Our economy is increasingly dependent on the success and integrity of the
financial markets. If a deal looks too good to be true, it probably is."
(Reporting
By Grant McCool, additional reporting by Aruna Viswanatha in Washington;
Editing by Martha Graybow)
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