Posts tagged “district judge”

Rajaratnam Trial To Start March 8

February 11th, 2011

Galleon Group founder Raj Rajaratnam’s trial on insider-trading charges has been delayed by a week.

U.S. District Judge Richard Holwell, who is presiding over the case, issued an order setting a new start day of March 8. The trial had been set to begin on Feb. 28.

It is unclear why Holwell chose to delay the trial; he did not offer a reason. But this week, lawyers for both sides and some witnesses have been coming to the Manhattan courthouse to work on pretrial matters. Reuters reports that attorney scheduling was the reason for the move.

Among those matters is an outstanding subpoena issued by Rajaratnam’s legal team to consulting giant McKinsey & Co. The two sides yesterday said they had reached an agreement on most matters, while Holwell sided with McKinsey on some of Rajaratnam’s document requests.

McKinsey had been fighting the subpoena, saying it sought “troves of irrelevant, unspecific and inadmissible documents.” Rajaratnam’s team shot back that the case has McKinsey “written all over it;” one of the 19 people to plead guilty in the case is a former senior director at the firm, and a former head of McKinsey, Rajat Gupta, is alleged to have passed confidential tips to Rajaratnam, although he himself has not been charged.

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SEC Wants Judge To Force Rajaratnam To Hand Over Wiretaps

December 22nd, 2010

Rajaratnam and Chiesi

Having lost his fight to keep thousands of wiretaps out of his criminal trial, Galleon Group founder Raj Rajaratnam will now have to renew his fight to keep them out of the hands of the Securities and Exchange Commission.

The SEC yesterday demanded that Rajaratnam and former co-defendant Danielle Chiesi, both accused of insider-trading, turn over some of the 18,150 wiretaps that they received from prosecutors in the crimin

al case. And it seems likely that the two will lose at least the first round: The judge presiding over the civil case, U.S. District Judge Jed Rakoff, had ordered them to turn over the taps even before U.S. District Judge Richard Holwell, who is overseeing the criminal case, ruled on their legality.

received an at least temporary reprieve when a federal appeals court ruled that Rakoff erred by granting the SEC’s request before Holwell ruled. But now that Holwell has ruled that the wiretaps were, in fact, legal, it is unclear that Rajaratnam and Chiesi will still have the appeals court’s ear.

“Given that the legality of the wiretaps has now been established, and given that the SEC is only seeking relevant intercepts, the SEC’s ‘significant’ right to obtain the relevant intercepts outweighs whatever arguable remaining privacy interests defendants and others may have,” the agency said in its filing.

“The SEC’s significant right of access to relevant, legally intercepted communications relating to the defendants’ insider trading scheme, and the substantial prejudice it will suffer if deprived of these intercepts, clearly outweighs any remaining, diminished privacy interests implicated in disclosing the relevant intercepts. Without the recordings, the SEC likely will be deprived of important admissions and in many instances the best, most direct evidence of wrongdoing.”

Rajaratnam and Chiesi may reprise their earlier arguments against giving the SEC the taps, noting that the agency lacks the authority to use wiretaps.

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Boo Hoo! Rajaratnam Moll Cries Over Miranda Rights

November 24th, 2010

Raj and Danielle

Nothing like high-paid consultants suddenly getting all dumb about their rights as they are being arrested.  That’s the sob story Danielle Chiesi, former hedge fund consultant and insider-trading co-defendant of Galleon Group founder Raj Rajaratnam, is giving in her first testimony on the stand.  Her lawyers are trying to suppress her statements made on the morning of her arrest.

Chiesi, formerly of New Castle Partners, said she was not informed of her Miranda rights for 90 minutes. Five Federal Bureau of Investigation agents woke her at 6 a.m. on Oct. 16, 2009, and told her she was being arrested.

During that time, Chiesi said the agents questioned her and offered her an opportunity to cooperate in the probe. She said the agents wanted her to place a call—which would be recorded—to a person on the West Coast. Chiesi did not identify that person.

Prosecutor Reed Brodsky countered that Chiesi was advised of her rights twice and that she only remembers the second. But U.S. District Judge Richard Holwell would not allow Brodsky to question her about the information covered during the first 90 minutes she was questioned in her Manhattan apartment.

Unlike Rajaratnam—who answered only monosyllabically during a pro-forma hearing earlier this year about a potential conflict of interest on the part of his lawyers—Chiesi testified at length and in some detail. She even admitted that she briefly considered accepting a deal and wearing a wire.

Chiesi, who admitted being nervous on the stand, said she considered taking the FBI agents, who she called “very nice,” up on their offer to cooperate. She also noted that at least one of them, “Claire,” won the affections of her usually antisocial cat.

“She’s usually very mean to people, and now I’m getting arrested and she’s in a good mood,” Chiesi said.

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Former SocGen Trader Now Officially a Thief – Convicted of Stealing Software

November 23rd, 2010

Samarth Agrawal, convicted thief

The proprietary trading software developed by a trading firm is considered the crown jewel of the operation. Woe to any disgruntled employee who tries to steal it. And woe was exactly what was visited on former Société Générale trader Samarth Agrawal, accused of stealing the bank’s high-frequency trading software for use at his new hedge fund job. The jury convicted him yesterday in a quick decision.

Agrawal was also convicted of transporting stolen property across state lines. The jury verdict was expected, given that Agrawal admitted on the stand Wednesday “all the essential elements” of the theft of trade secrets charge, U.S. District Judge Jed Rakoff said.

For most of the two-week trial, Agrawal denied any wrongdoing. Indeed, during the first part of his testimony, he said that he had taken SocGen’s code home on orders from his superiors. But he later admitted that he “did it because I have to build the similar system at Tower” Research Group, a hedge fund that had hired him.

Tower has denied that it hired Agrawal to get access to the prime broker’s high-frequency trading software.

Agrawal will be sentenced on Feb. 24. Rakoff said on Wednesday that he suspected the late admission was part of a “sympathy defense.” It appears to have worked; on Friday, Rakoff said Agrawal “may be entitled” to a lesser sentence due to his “acceptance of responsibility.” He faces between three years and 10 months and four years and nine months under federal sentencing guidelines; the Indian citizen will likely be deported from the U.S. after completing his sentence.

SocGen said it was “satisfied” with the verdict.

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Federal Judge Sides With Bayou Group Creditors Against Goldman Sachs

November 9th, 2010

Goldman Sachs just cannot get a break in its battle with Bayou Group. After losing an arbitration that resulted in a $20.6 award to the hedge fund, Goldman asked a federal judge to throw out the award. U.S. District Judge Jed Rakoff declined.

Bayou is now defunct, but its unsecured creditors are alive and kicking. The judge granted their request to confirm the award made by the Financial Industry Regulatory Authority last June. The creditors claimed the Goldman’s clearing unit ignored obvious signs of the $450 million fraud perpetrated by former Bayou head Samuel Israel, who was sentenced in 2005 to 20 years in the big house.

“It’s significant,” said Ross Intelisano, a partner at Rich & Intelisano LLP, representing the creditors. “It confirms the largest arbitration award ever rendered against Goldman, and provides a significant recovery for investors.” Goldman spokesman Ed Canaday declined to comment.

It was not immediately clear whether Goldman plans an appeal. As is customary, the arbitrators did not provide reasons for their decision. According to a spokesperson for FINRA, appeals of arbitrators’ decisions are rare. Judge Rakoff said he will issue an opinion to explain his reasons for upholding the award. If the award stands, it could increase the requirements that Wall Street banks set before clearing trades for clients.

In court papers, Goldman called the legal foundation for the arbitration award “demonstrably wrong.” Goldman said the law is “crystal clear” that it cannot be liable for money that Bayou deposited into and shuffled among accounts at the bank.

The Securities Industry and Financial Markets Association filed an amicus brief in support of Goldman. The brief provided an overview of the current regulatory context and argued that clearing brokers have no obligation to monitor the accounts of investors whose transactions they clear. The Association said that clearing houses have only a “backend” or record-keeping role in investment transactions and that they are not set up carry out a monitoring function. Forcing clearing houses to monitor for “red flags” would come at considerable expense and change the way Wall Street does business, it added.

Every year, thousands of investors and firms take their disputes to arbitration. The process is overseen by FINRA and is often triggered by a mandatory arbitration in contracts between banks and investors.

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PAAMCo Plays the Gender Card, Flushed by SEC

October 31st, 2010

Women are no doubt outraged tonight as they learn, once again, how they have been taken advantage of by The Man.  In this case, Pacific Alternative Asset Management (PAAMCO).  Seems the fellows over there set themselves up, misleadingly, as  a “women-owned business” and structured a loan on that basis.

U.S. District Judge Richard Sullivan’s ruling that PAAMCo “may have been designed to mislead” about its woman-owned status, got the boys at the Securities and Exchange Commission a little curious about the fund-of-hedge-funds firm. PAAMCo admitted the scrutiny had sparked SEC interest in a letter to investors.

In the letter, PAAMCo disclosed that Sullivan in August granted Paloma Partners founder and PAAMCo backer S. Donald Sussman a 40% stake in PAAMCO Founders, the fund of funds’ parent company. Sullivan wrote in his decision that PAAMCo had structured Sussman’s investment as a loan so that it would “qualify as a women-owned business,” possibly misleading “a number of observers, from the tax authorities to the SEC to entities wishing to invest in women-owned businesses.”

PAAMCo has denied Sussman’s take on the situation, noting that it has never pursued mandates designed specifically for women- or minority-owned firms. However, there are reports the Susan B. Anthony is turning in her grave.

The fund of funds said it was cooperating with the SEC after it “determined it was important to proactively reach out to the SEC about the decision.” PAAMCo said it had met with SEC representatives in Los Angeles and “answered all of their questions about the case.”

Whether or not the SEC finds any wrongdoing on PAAMCo’s part, the Sullivan ruling has already cost it a $36 million mandate. The Los Angeles Water and Power Employees’ Retirement Plan fired the firm on Wednesday due to the uncertainty raised by the Sussman case.

“PAAMCo has made it clear that Donald Sussman’s equity ownership in PAAMCO Founders is a passive position and that he has no controlling interest,” Neil Rue of the pension’s consultant, Pension Consulting Alliance, wrote in a report to LAWPERP’s board. “However, after further review with staff and PAAMCo, PCA feels that the long-term implications of Mr. Sussman and the subsequent loss of expected revenue will detract from the value of the WPERP portfolio.”

Rue counseled the pension to launch a search for a new fund of hedge funds manager, but WPERP Chairman Javier Romero would not confirm that one had been authorized.

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Another Day, Another Ponzier Sentenced

September 15th, 2010

Shawn Merriman

Wasn’t it just 24 hours ago we reported the sentencing (and emotional breakdown) of Ponzi-schemer Robert Moffat for defrauding customers?  Well, it seems that a lot of chickens are coming home to roost this week.  On Tuesday, Shawn Merriman, the self-confessed conman who cheated almost 70 investors out of at least $20 million, was gift-wrapped a sentence of 12 ½ years in the slammer. He will also have to pay $20.1 million in restitution.

U.S. District Judge Marcia Krieger handed down the maximum punishment.

Since the early 1990s, Merriman told his victims they were getting annual returns of 7 to 20 percent from stock market investments. However, in 2009, the Aurora man admitted he was spending the money on himself, rather than investing it in the stock market.

Merriman lived in a million dollar home in Aurora where in 2009, federal agents seized his assets including a new motor home, a classic car collection, boats and motorcycles. The U.S. government will now have to auction off those items to try and recover money for Merriman’s victims. Authorities said his art, car and other collections are worth about $4 million, and proceeds from their sale will go to victims.

Most of his victims were fellow Mormon Church members, friends of friends, or fellow hobbyists.

“I even count my change at McDonald’s because I don’t trust any more,” Todd McCann, one of Merriman’s victims, said.

McCann described how generations of his family lost money investing with Merriman’s company, Market Street Advisors, and ended his statement saying, “Shawn, I hope you burn in hell.”

Five other victims spoke directly to Judge Marcia Krieger and Merriman during the sentencing hearing detailing how they put trust and confidence in Merriman to make financial decisions for them.

“We want to see him go away for a long time” said victim Hal Bjorklund during the morning recess. Bjorklund traveled from Montana for the hearing. “I wouldn’t miss this for the world.”

Merriman spoke for himself as well, trying to plead with the judge that his cooperation with authorities should grant him a lighter sentence. He and his attorney argued for a five-year prison term.

“I didn’t start my investment company with malicious intent,” Merriman said. “Since turning myself in, I did everything I could to maximize the return for my investors.”

Merriman has lost his wife, his home, and has been excommunicated from his position as a Mormon Church bishop.

“I know saying I’m sorry doesn’t make things right,” he said. “Each of my investors is a great person who doesn’t deserve what I did to them.”

After Merriman serves his 12 and a half year sentence, he will serve three years probation.

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Twelfth Guilty Plea in Galleon Insider-Trading Scandal

July 22nd, 2010

It’s a full 12-pack of guilty pleas as David Plate conceded his role in the ongoing Galleon Group insider-trading case. Mr. Plate pleaded guilty last week to conspiracy and fraud. Previously, Mr. Plate was a trader at Schottenfeld Group and Incremental Capital.

Plate is the 12th person to plead guilty, out of the 21 charged in the case. He was arrested on Nov. 5, one month after the first wave of arrests in the case that netted Galleon Group founder Raj Rajaratnam, who has pleaded not guilty. Plate admitted to buying 50,000 shares of Axcan Pharma after receiving a tip from other players in one of two allegedly interlocking insider-trading circles, this one allegedly led by former Galleon employee Zvi Goffer.

Plate told U.S. District Judge Richard Sullivan that he received tips about 3Com Corp. from Goffer, and that Goffer asked him to hold onto his 3Com research file to help him conceal his activities.

Plate is one of eight men accused of being part of the Goffer ring. He is also the only one of the group indicted in February to plead guilty, after initially entering a not-guilty plea with the other six. Brian Santarlas, a former lawyer at Ropes & Gray—the law firm Plate said he got the tip he traded on from—has also pleaded guilty and is cooperating with prosecutors.

Plate faces up to 25 years in prison when he is sentenced.

Last March, Schottenfeld Group agreed to pay $1.2 million to settle charges brought by the SEC. The New York-based firm also agreed to cooperate with the SEC’s ongoing investigation and enforcement action. Schottenfeld neither admitted nor denied any wrongdoing.

Zvi Goffer, a proprietary trader at the firm, has been accused of masterminding one of the two interlocking insider-trading circles. He, five other traders and two lawyers were sued by the SEC in November. Goffer, known to his fellow insider-trading suspects as “Octopussy,” and one of the lawyers, Arthur Cutillo, have been charged criminally in the Galleon case and have pleaded not guilty.

Disgorgement of allegedly illicit profits earned for the firm by its traders account for $742,000 of the amount Schottenfeld paid. The firm also accepted a $371,200 fine and $96,200 in prejudgment interest.

Schottenfeld is still facing a separate SEC enforcement action stemming from the other half of the alleged insider-trading circle, involving Galleon founder Raj Rajaratnam.

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