Seven indicted in Galleon insider trading case

Date: Friday, January 22, 2010
Author: Jonathan Stempel, Reuters

* Brings to nine the number of people formally charged 

* Defendants accused of trading on tips on pending mergers

* Arraignment scheduled for Feb. 2

Federal prosecutors on Thursday unveiled grand jury indictments against seven additional defendants in what the government has called the largest hedge fund insider trading probe ever.

The 10-count indictment brings to nine the number of people who have been formally indicted, including Galleon Group founder Raj Rajaratnam, the central figure in the probe.

Among the newly indicted defendants are Craig Drimal, 53, whom prosecutors said worked in Galleon's offices but was not employed there, and Zvi Goffer, 33, who worked at Galleon and later started the Incremental Capital trading firm.

Others indicted include three others associated with Incremental: Zvi Goffer's brother Emanuel Goffer, 31; Michael Kimelman, 38, and David Plate, 34; Arthur Cutillo, 33, who had been a lawyer at Ropes & Gray LLP; and another lawyer, Jason Goldfarb, 31. All live in the New York metropolitan area.

Each of the seven defendants was accused of securities fraud and conspiracy when the government in November announced an expanded probe.

The latest indictments add an additional count of conspiracy and three new fraud counts. They allege the defendants were involved in conspiracies to trade on insider tips about companies that were acquisition targets, including Hilton Hotels Corp and technology company 3Com Corp (COMS.O).

Lawyers for the seven defendants either declined immediate comment or did not immediately return calls for comment.

Each securities fraud count has a maximum 20-year prison sentence and each conspiracy count has a maximum five-year term. The defendants are to be arraigned Feb. 2 before U.S. District Judge Richard Sullivan in Manhattan federal court.

"OCTOPUSSY"

The government had accused Zvi Goffer of leading an inside trading ring that netted $11 million.

Prosecutors have said he was known as the "Octopussy" for his supposed ability to gather information and gave tippers prepaid cellphones to limit the chances of getting caught.

More than 20 defendants have been charged in the probe.

Seven have entered guilty pleas and are cooperating with prosecutors and the government last week indicated it may be near a plea agreement with an eighth defendant, former New Castle Funds LLC hedge fund executive Mark Kurland.

Rajaratnam and Danielle Chiesi, an official at New Castle, were indicted in December and pleaded not guilty.

TIPS ON MERGERS

The newly-indicted defendants were charged with securities fraud in connection with the purchase of 3Com, and Zvi Goffer and Plate were also charged in connection with the purchase of Axcan Pharma Inc stock.

According to the indictment, Cutillo, Zvi Goffer, Goldfarb and Brien Santarlas, a former Ropes & Gray lawyer who pleaded guilty to fraud and conspiracy last month, engaged in one conspiracy to leak tips from the law firm on takeovers of 3Com by Bain Capital Partners LLC, and Axcan by TPG Capital.

It said Goffer would place profitable trades. and that he, Goldfarb and others would pay tens of thousands of dollars to Cutillo and Santarlas in exchange for the tips.

The indictment said that in another conspiracy, the several defendants conspired with Gautham Shankar, who has pleaded guilty, to trade on tips about pending takeovers of management services company Kronos Inc by Hellman & Friedman Capital Partners, and Hilton by Blackstone Group LP (BX.N)

Unlike in the charges unveiled in November, Thursday's indictment does not include insider trading allegations relating to telecommunications company Avaya Inc. It is not clear why Avaya was not included.

The office of U.S. Attorney Preet Bharara had no immediate comment following the indictment.

The latest case is U.S. v. Goffer et al, U.S. District Court, Southern District of New York, No. 10-cr-056.