(Updates with excerpt from letter in third paragraph.)
Jan. 9 (Bloomberg) -- David Slaine, a former Galleon Group LLC employee who pleaded guilty to criminal charges, was crucial to the prosecution of Zvi Goffer’s insider-trading ring and helped lead investigators to Raj Rajaratnam and Primary Global Research LLC, U.S. prosecutors said.
Slaine wore a wire to record dozens of conversations with Goffer and others, helping to spur what became the biggest probe of insider trading at hedge funds, prosecutors from the office of U.S. Attorney Preet Bharara in Manhattan said today in a letter to U.S. District Judge Richard Sullivan. Calling Slaine’s cooperation “nothing short of extraordinary,” the government asked for leniency when he’s sentenced.
“Evidence gathered by Slaine played a role in, among other things, the successful prosecution of Raj Rajaratnam and his co- conspirators, as well as the defendants in the Primary Global Research case,” according to the letter. “His assistance was the launching point for many successful and ongoing criminal investigations of multiple insider trading networks.”
Slaine, who pleaded guilty to conspiracy and securities fraud in December 2009, testified at the trial of Goffer, his brother Emanuel Goffer and Michael Kimelman that he cooperated with federal agents for about 2 1/2 years to try to avoid prison.
Facing 25 Years
Slaine faces as long as 25 years in prison when he’s sentenced. He testified that he became friends with Craig Drimal, another former Galleon trader who pleaded guilty, in the late 1980s or early 1990s.
A co-founder of Galleon Group, Rajaratnam reported to Federal Medical Center Devens in Ayer, Massachusetts, last month to begin an 11-year prison sentence. He was convicted by a federal jury in May of 14 counts of conspiracy and securities fraud for trading on inside information.
Slaine pleaded guilty to trading on inside information in 2002 when he was head trader of Chelsey Capital, a hedge fund, according to the letter, which was signed by assistant U.S. attorneys Andrew Fish, Reed Brodsky and Richard Tarlowe.
Approached in 2007
Slaine was approached by the government in July 2007, according to the letter. He told investigators about possible insider trading by Drimal, then agreed to wear a wire and record conversations with him. The conversations with Drimal led to the Goffers and Kimelman, whom Slaine also recorded at the direction of the Federal Bureau of Investigation, the prosecutors said. Slaine also recorded dozens of conversations with other potential targets of the government’s investigation, they said.
Investigators used Slaine’s conversations with Drimal to get authorization for wiretaps on Zvi Goffer, Brooklyn lawyer Jason Goldfarb, former Schottenfeld Group LLC trader Gautham Shankar and Thomas Hardin, an ex-Lanexa Global Management trader.
“The government would not have been able to obtain these wiretap authorizations without Slaine’s cooperation,” the prosecutors said. “Evidence obtained through the wiretaps led to the successful prosecution of numerous individuals.”
Slaine worked closely with the FBI for many months, providing general information about the securities industry and the workings of particular hedge funds, they said. In May, he testified against the Goffers and Kimelman, telling jurors he followed the instructions of FBI agents in collecting evidence for their investigation.
‘Did as Told’
“They gave me a job to do,” Slaine testified. “I listened to them and did what they told me.”
Slaine’s cooperation was key to convicting the Goffers and Kimelman and led to guilty pleas from nine others connected to the ring, the government said in the letter.
Government investigators used the wiretaps of Drimal and Goffer to get a warrant to tap Rajaratnam’s cell phone, according tot he letter. Recordings of Rajaratnam’s conversations were the centerpiece of his trial and implicated others who have been charged in the investigation, including Rajat Gupta, the former Goldman Sachs Group Inc. director.
Slaine’s cooperation also led, through Shankar and Hardin, to Karl Motey, an independent consultant whose cooperation with federal investigators led to the prosecution of former Primary Global Research LLC executive James Fleishman and others connected to the expert networking firm.
“Without Slaine’s cooperation, the government may well have never uncovered the insider trading activities of Zvi Goffer and his network, and the numerous investigations arising in part out of Slaine’s cooperation would have been hampered considerably, if not completely,” the government said in the letter.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Peter Blumberg, Mary Romano
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