In Arrests, Wiretaps Resurface As Weapon Against Wall Street

Date : 12/16/2010 @ 3:49PM
Source : Dow Jones News
Stock : Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
Quote : 35.51  0.0 (0.00%) @ 8:30AM

In Arrests, Wiretaps Resurface As Weapon Against Wall Street

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Two of the defendants in the insider trading case unveiled Thursday fretted to each other about the arrest on Oct. 16, 2009, of Galleon Group founder Raj Rajaratnam and others for alleged insider trading.

Unknown to the two men, their conversation was already being recorded.

During call recorded that day off his cell phone, Mark Anthony Longoria, a supply chain manager for Advanced Micro Devices Inc. (AMD), explained his concerns about the arrest of Rajaratnam to James Fleishman, a sales manager for Primary Global Research, an expert network firm. Both men, along with two others, were arrested Thursday as part of a broadening insider trading probe.

Galleon wasn't a client of Primary Global, Fleishman reassured Longoria on the 2009 phone call. Longoria sounded paranoid but relieved. "I was like really getting nervous...and then it even said in there that they were trading AMD, and I was like 'Oh crap!'" he said on the taped phone call, which was transcribed in the prosecutors' complaint against them on Thursday.

As the saying goes, just because you're paranoid doesn't mean people aren't out to get you.

Arrests in the insider case unveiled by federal prosecutors in New York Thursday were backed up with several references in court documents to wiretapped conversations.

Prosecutors also used court-ordered wiretaps to go after Rajaratnam, a tactic that until recently had been reserved for prosecutions of drug kingpins, terrorists, and organized crime figures. Rajaratnam has asserted his innocence.

Lawyers said Preet Bharara, U.S. Attorney for the Southern District in New York, is being far more aggressive than previously thought in following through on his promise to punish Wall Street abuses.

"It's fair for people on Wall Street to consider whether there's a possibility that there are wiretaps involved in the conversations they're having," said Robert Mintz, a white collar defense lawyer at McCarter & English. "In the months ahead it will become even more apparent that the U.S. is casting a broad net."

The other defendants arrested Thursday in the insider trading probe are Walter Shimoon, a senior director of business development at Flextronics International Ltd. (FLEX), and Manosha Karunatilaka, an account manager at Taiwan Semiconductor Manufacturing Co. (TSM, 2330.TW).

Lawyers for Longoria, Fleishman and Karunatilaka weren't immediately available to comment. Shimoon's defense counsel was not known.

Another consultant, Daniel Devore, former global supply manager at Dell Inc. (DELL), pleaded guilty to fraud and conspiracy charges on Dec. 10, prosecutors said. He is cooperating in the investigation.

Prosecutors used court-approved wiretaps to intercept communications on two telephones at an expert network firm--presumably Primary Global--from 2009 to 2010. They also wiretapped an unnamed California-based hedge fund, intercepting calls between October 2008 and February 2009, the complaint says. And wiretaps intercepted cell phones belonging to Longoria and Shimoon.

An intercepted phone call from the expert network, dated one day before the Galleon arrests, occured between Shimoon and an employee of an unnamed New York hedge fund. The complaint says during the Oct. 15, 2009, call, Shimoon was recorded giving the hedge fund employee information about the next-generation iPhone. Flextronics had a business relationship with Apple Inc. (AAPL), prosecutors say.

A call intercepted between Shimoon and an unnamed cooperating witness, identified as an employee of the expert networking firm, on Nov. 5, 2009, quoted Shimoon telling the witness "that would really suck if you recorded all the calls."

Wiretaps are hard to come by and have to be court approved after federal agents have gathered substantial evidence, Mintz from McCarter & English said. They are also expensive because of the monitoring required. But they can be "an extremely potent weapon" in persuing these cases, Mintz said.

-By Liz Moyer, Dow Jones Newswires; 212-416-2512; liz.moyer@dowjones.com

 
 

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