Wiretaps used in fraud, trading cases
WASHINGTON — Secret, court-approved wiretaps put in place more than two years ago are now being used by prosecutors in a widening inquiry of securities fraud and insider trading involving hedge funds and consultants that provide industry research, according to court documents and interviews with people close to the investigations.
The wiretaps were originally part of an insider trading investigation of the New York hedge fund Galleon Group. Those wiretaps, which involved the phones of at least seven individuals, potentially provided prosecutors with a vast array of new evidence for use in the latest investigations. Only four of the seven wiretap targets have been identified in court papers that have been made public so far in the Galleon case.
The expanded use of the secret wiretaps in the new inquiries was revealed last week by the U.S. attorney in Manhattan when the FBI arrested Don Ching Trang Chu, a consultant at Primary Global Research, on securities fraud and conspiracy charges.
The case involving Chu relied on information gathered in one of the seven wiretaps set up in the Galleon investigation, according to court documents. The Galleon case, which began after insider-trading charges were filed against its founder, Raj Rajaratnam, in October 2009, was the first insider trading case to rely on wiretaps.
In the new investigation, three hedge funds were raided by the FBI last week and several other money management companies received subpoenas or requests for information. Preet Bharara, the U.S. attorney for the Southern District of New York, said the investigation was continuing.
The existence of at least seven secret wiretaps was disclosed in documents filed in Federal District Court in Manhattan in May. The documents included a letter, dated March 22, from Bharara to lawyers representing Rajaratnam and Danielle Chiesi, a co-defendant who was employed by a hedge fund called New Castle Partners. In the letter, Bharara noted that the evidence prosecutors had turned over to the defendants included wiretap applications for phones used by five other individuals.
One of those five individuals is Richard Choo-Beng Lee, a hedge fund trader who has pleaded guilty to insider trading-related charges in the Galleon case.
Another of the individuals is Ali Far, of Saratoga, Calif., a co-founder and managing partner at Far & Lee, a trading firm, and Spherix Capital, a hedge fund. Far also pleaded guilty in October 2009 to insider-related charges and is cooperating with prosecutors.