INTRODUCTION
1 Description of FBI’s meeting with David Slaine from author interviews with government investigators directly involved in the investigation and various news accounts, including Susan Pulliam, “Wired on Wall Street: Trader Betrays a Friend,” Wall Street Journal, January 16, 2010.
2 Description of how Slaine initially appeared on government’s insider trading radar screen from author interviews with government officials, public documents such as the Securities and Exchange Commission’s complaint against Slaine, and various news accounts including David Glovin and David Voreacos, “Dream Insider Informant Led FBI From Galleon to SAC,” Bloomberg, December 3, 2012.
3 Size of the hedge fund business in 2007 of $2 trillion from Adrian Blundell-Wignall, “An Overview of Hedge Funds and Structured Products: Issues and Risk,” OECD.org, 2007.
3 Slaine’s job background from various news accounts.
4–5 Background on David Chaves and David Makol from author interviews with people who know both men, as well as Susan Pulliam, Michael Rothfeld, and Jenny Strasberg, “The FBI Agent Who ‘Flips’ Insider-Trading Witnesses,” Wall Street Journal, January 20, 2012.
6 Slaine’s decision to cooperate with the government and his attitude during meetings with the FBI from author interviews with various government investigators. Slaine’s attorney would not deny the account.
7 B. J. Kang approached Roomy Khan and turned her as a witness from author interviews with government officials, various news accounts, including George Packer, “A Dirty Business: New York’s Top Prosecutor Takes On Wall Street Crime,” New Yorker, June 27, 2011.
8 As many as nine former SAC employees implicated in insider trading cases so far and Steinberg’s status as unindicted co-conspirator from Emily Flitter and Katya Wachtel, “Prosecutors Zero In on SAC Capital Insider Steinberg,” Reuters, February 6, 2013.
9 FBI wiretapping Steve Cohen’s telephone from author interviews with people close to the investigation.
11 The significance of the securities acts of 1933 and 1934 from various news accounts including Roger Lowenstein, “The War on Insider Trading: Market-Beaters Beware,” New York Times, September 22, 2011.
17 Amount of money Raj Rajaratnam made through illegal insider trading from various news accounts, including Peter Lattman, “Rajaratnam Gets 11 Years for Insider Trading,” New York Times, October 13, 2011; Kaja Whitehouse, “Raj to Judge: I Only Made $7 million,” New York Post, October 5, 2011.
CHAPTER 1: PERFECTLY LEGAL
21–22 The travails of William Duer from various news accounts, including Steve Fraser, “Sex, Insider Trading and the First U.S. Financial Panic,” Bloomberg, December 9, 2011.
23 Ulysses S. Grant’s involvement in insider trading, “Black Friday, September 24, 1869,” PBS.org.
23 Why President Roosevelt chose Joseph Kennedy as first chairman of the Securities and Exchange Commission and Roosevelt’s quote about Kennedy from William D. Pederson, Blackwell Companions to American History: Franklin D. Roosevelt (New York: John Wiley & Sons, 2011).
24 Background on Kennedy’s market activities from various sources, including Conrad Black, “The Peculiar Life of Joseph Kennedy,” a review of David Nasaw’s The Patriarch: The Remarkable Life and Turbulent Times of Joseph P. Kennedy (New York: Penguin, 2012), National Interest, October 24, 2012.
26 Impact of the Pecora hearings and Pecora’s background from various news accounts and from Amanda Ruggeri, “Pecora Hearings a Model for Financial Crisis Investigation; Congress Could Learn from Pecora’s 1930s Investigation of the Stock Market Crash,” U.S. News & World Report, September 29, 2009.
27 Quote from Arthur Prentice Rugg and details of Cliff Mining case from Rick Wartzman, “A 1920s Insider Trade Was Ruled by a Court to Be Merely a Perk,” Wall Street Journal, July 3, 2002.
30 Letters to the SEC from commission archives.
32 Background on William Cary and Cady Roberts case from various news sources, including Michael Bobelian, “The Obscure Insider Trading Case That Started It All,” Forbes, November 20, 2012. Also see Joan K. Martin, “Insider Trading and the Misappropriation Theory: Has the Second Circuit Gone Too Far?” St. John’s Law Review 61 (Fall 1986).
35 Background on the case of Raymond Dirks and Harvey Pitt’s comment about the SEC’s “perspiration effect” from Jack Egan, “The War on Wall Street’s Inside Dopesters,” New York Magazine, March 28, 1983.
37, 42, 43 Background on Dirks, Anthony Chiarella, Foster Winans, and O’Hagan insider trading cases from various news reports, including the following speech: “U.S. Experience of Insider Trading Enforcement,” by Linda Chatman Thomsen, director, Division of Enforcement, U.S. Securities and Exchange Commission, Melbourne, Australia, February 19, 2008.
37 Background on Texas Gulf Sulphur case from Stephen M. Bainbridge, “An Overview of U.S. Insider Trading Law: Lessons for the EU?” UCLA School of Law, Law & Economics Research Paper Series, 2004.
38 More background on the Chiarella case from Joel M. Cohen and Mary Kay Dunning, “Insider Trading: It’s Not Just for Suits,” Law Journal Newsletters’ Business Crimes Bulletin 18, no. 4 (December 2008).
40 Warren Burger dissent from U.S. Supreme Court, Chiarella v. United States, 445 U.S. 222 (1980), Chiarella v. United States No. 78-1202, argued November 5, 1979, decided March 18, 1980, 445 U.S. 222; and “History of Insider Trading 1611–2012,” procon.org.
42 Background on Winans case from “Fair to All People: The SEC and Regulation of Insider Trading,” www.sechistorical.org.
44 Supreme Court’s O’Hagan decision and its impact on insider trading laws from various sources, including Thomsen, “U.S. Experience of Insider Trading Enforcement.”
CHAPTER 2: TEN DIFFERENT CAMERAS ON EVERY TRADER
50 SAC’s share of Nasdaq and New York Stock Exchange daily trading volume from Streetinsider.com biography of Steve Cohen.
54 Insider trading case against Carl Karcher, settlement, and other details from author interviews and “S.E.C. Cites Carl Karcher,” New York Times, April 14, 1988. Also see Mary Ann Galante, “Karcher: Cloudy Chapter in Horatio Alger Success Story,” New York Times, April 15, 1988; “Carl’s Jr. Founder, Family Settle Insider-Trading Lawsuit,” Associated Press, July 1989.
55 Much of the information in this book about the insider trading scandals of the 1980s, including cases against its major figures, Ivan Boesky, Martin Siegel, Dennis Levine, Michael Milken, and Drexel Burnham Lambert are from James Stewart, Den of Thieves (New York: Simon & Schuster, 1991); and James B. Stewart and Daniel Hertzberg, “Siegel: American Dream Gone Bad,” Wall Street Journal, February 1987.
57 Insider trading case against porn star Kathryn Gannon and Jim McDermott from author interviews and Charles Gasparino and Jeff D. Opdyke, “Porn Star Insider-Trading Case Uncovered by a Routine Inquiry,” Wall Street Journal, January 13, 2000. Also see Charles Gasparino and Laurie P. Cohen, “Keefe Bruyette Let Staffers Buy Company Stock Amid Scandal,” Wall Street Journal, December 23, 1999.
59 Jim McDermott’s excuse for insider trading from Greg B. Smith, “Siblings Tell ‘Sad Tale’ of James McDermott: Raided Family Trust During Tryst with Porn Star,” New York Daily News, October 3, 2009.
59 Details of Martha Stewart insider trading case and ultimate conviction from author interview and various news accounts, including Charles Gasparino and Jerry Markon, “Martha Stewart Faces Wider Probe for Possible Obstruction of Justice,” Wall Street Journal, June 6, 2002. Also see Greg Smith, “Martha Pal Sank Me, Broker Sez,” New York Daily News, April 20, 2004.
61 Martha Stewart’s net worth and savings from the suspicious trade from Keith Naughton, Barney Gimbel, and Peg Tyre, “Martha’s Makeover,” Newsweek, January 19, 2004.
64, 67 Martha Stewart’s settlement with the SEC from Peter J. Hennings, “White Collar Watch: Insider Trading Riddle: Why Do the Rich Risk It?” New York Times, April 5, 2012.
66 Background on Steve Cohen and SAC Capital, including his years a
t Gruntal and trading style, from author interviews and various news accounts, including Mitchell Pacelle and Charles Gasparino, “A Day Trader Gets on a Roll, For 20 Years,” Wall Street Journal, December 3, 1999. Also see Sheelah Kolhatkar, “Where Hedge Fund Mogul Steve Cohen Learned to Trade,” Bloomberg, December 7, 2012.
CHAPTER 3: DO WHATEVER IT TAKES
71 Background on Pathmark and SAC’s presale purchase of shares, including company’s reaction and details of sale to A&P, from people with direct knowledge of the matter and various news accounts, including, “Hedge Fund Group Reveals 5 Percent Stake in Pathmark,” Progressive Grocer, December 22, 2006. See also “Great Atlantic in Negotiations to Purchase Pathmark Stores for About $652.5M,” FinancialWire, February 28, 2007; “SAC Capital/Steven Cohen Discloses a 5% Stake in Pathmark Stores (PTMK),” StreetInsider, December 21, 2006.
73 Section on Wall Street sell-side research through the scandals that ended with investigations into conflicts of interest between banking and research from original reporting, various news accounts, and Charles Gasparino, Blood on the Street (New York: Free Press, 2005).
80 John Kinnucan’s transition from sell-side analyst to independent analyst and his activities and salary from author interviews with Kinnucan.
CHAPTER 4: A REGULAR GUY
85 Details about SAC Capital, including size and Steve Cohen’s net worth, from “Top Q4 Undervalued Buys and Sells of Stephen Cohen’s $15.8 Billion Hedge Fund,” SeekingAlpha, February 27, 2012.
87 The decentralization of SAC Capital from author interviews and Peter Lattman and Andrew Ross Sorkin, “Titan Under a Microscope,” New York Times, May 7, 2011.
88 Gary Aguirre’s testimony from “Testimony of Gary J. Aguirre, Esq., Before the United States Senate Committee on the Judiciary,” United States Senate Committee on the Judiciary, June 28, 2006.
92 Background on FBI agent B. J. Kang from author interviews and various published reports, including Matthew Goldstein and Svea Herbst-Bayliss, “The FBI Agent Inside the Galleon Case,” Reuters, December 4, 2009.
94 Funkhouser flagging suspicious SAC trades for the SEC, including Genentech, from Joshua Gallu and Saijel Kishan, “SAC Capital Netted $14M in Trading Flagged by Finra,” Bloomberg, October 25, 2011.
95 Growing suspicions about widespread insider trading and insider trading surrounding News Corporation’s purchase of Dow Jones from Victoria Kim and Brooke Masters, “Boom Time for Suspicious Trades,” Financial Times, August 5, 2007.
CHAPTER 5: WHAT FRIENDS ARE FOR
99 Details of the Franklin-Babcock-Guttenberg circle of friends from author interviews with people with direct knowledge of the matter and various news accounts, including Jenny Anderson and Michael J. de la Merced, “13 Accused of Trading as Insiders,” New York Times, March 2, 2007.
100 Background on Joe Lewis from Stephen Foley, “Who Is Bear Stearns Investor Joe Lewis?” BloombergBusinessweek, September 11, 2007.
106 SAC and “information arbitrage” from “At SAC It Was Understood You Provided Steve Cohen With Inside Information,” ZeroHedge, October 2, 2012.
106 Steve Cohen’s appearance on talk show Christina from Kaja Whitehouse, “Steven Cohen Slept with Both Spouses While Divorcing,” New York Post, December 22, 2009.
108 Patricia Cohen discusses Steve Cohen’s alleged insider trading with FBI from author interviews and various news accounts, including Kaja Whitehouse, “Steven Cohen’s Ex-Wife Dished to FBI,” New York Post, December 19, 2009.
108 Details on Patricia Cohen’s meeting with FBI agent Kang from author interviews with government investigators and others involved in the investigation, as well as the spokesman for Cohen who wouldn’t deny account provided by Patricia Cohen. Other details about Cohen’s years at Gruntal, including SEC investigation and NYSE regulatory infraction, from various published reports, including Mitchell Pacelle and Charles Gasparino, “A Day Trader Gets on a Roll, for 20 Years,” Wall Street Journal, December 3, 1999. Also see Sheelah Kolhatkar, “Where Hedge Fund Mogul Steve Cohen Learned to Trade,” Bloomberg, December 7, 2012; Matthew Goldstein and Svea Herbst-Bayliss, “Ex-Wife Sues SAC’s Cohen, Alleges Insider Trading,” Reuters, December 16, 2009; Katherine Burton and Anthony Effinger, “Steve Cohen’s Trade Secrets,” Bloomberg Markets, February 26, 2010.
108 Patricia Cohen’s allegations of insider trading, including Dennis Levine’s alleged involvement, from court documents and Courtney Comstock, “Patricia Cohen Details SAC’s Steve Cohen’s ‘The Wharton Mafia’ and Alleged Insider Trading,” Business Insider, July 29, 2010.
109 Sanjay Wadhwa background and investigative techniques and how he came across Galleon from numerous author interviews with SEC officials and various news accounts, including Devin Leonard, “Rajaratnam Case Shows Outmanned, Outgunned SEC on a Roll,” Bloomberg, April 19, 2012.
112 Details of seamstress case and Wadhwa’s involvement from author interviews, various news accounts, and staff statement in SEC v. Anticevic, press conference by Mark K. Schonfeld, director, Northeast Regional Office, U.S. Securities and Exchange Commission, New York, NY, April 11, 2006.
114 Background on how Galleon got its start from author interviews and Lois Peltz, The New Investment Superstars: 13 Great Investors and Their Strategies for Superior Returns (New York: Wiley, 2001).
116 Background on Raj Rajaratnam, including alleged involvement with Tamil Tigers, from author interviews and various news accounts, including David Rose, “Crouching Tiger, Hidden Raj,” Vanity Fair, September 30, 2011.
CHAPTER 6: BIGGER FISH
121 Questioning by SEC officials found in publicly available transcripts of the deposition and described in numerous court documents.
125 Anonymous letter sent to SEC from author interviews, and various news accounts including Lowenstein, New York Times.
128 Roomy Khan’s early brush with insider trading violations when an employee at Intel and her background from author interviews, various news accounts, and Alexandria Sage, “Galleon Got Inside Info on Intel in 1990s—Document,” Reuters, October 23, 2009.
133 How B. J. Khan decided to approach Roomy Khan and details about his methods involving cooperators from author interviews with government officials involved in the case
134 Roomy Khan’s winnings from Hilton trade from SEC case.
134 Financial issues involving Roomy Khan and her husband, including legal problems from author interviews and various news accounts, including from Michael J. de la Merced, Zachery Kouwe, and Alex Berenson, “Financial Woes Plagued Galleon Informant,” New York Times, October 21, 2009.
CHAPTER 7: THE FLIP
137 Kang’s conversation with Khan and his efforts to flip her from various news accounts, court documents, and interviews with government officials.
145 Background on Rich Jacobs from author interviews with government officials and Emily Flitter, “Wall Street credibility helped FBI agent nab Martoma, others,” Reuters, December 6, 2012.
149 Physical description of David Slaine from various news accounts and Todd Harrison, The Other Side of Wall Street. Background on Slaine from Susan Pulliam, “Wired on Wall Street: Trader Betrays a Friend,” Wall Street Journal, January 16, 2010.
150 How Franklin-Babcock-Guttenberg circle led to David Slaine from author interviews, and various news accounts, including Zachery Kouwe, “In Insider Trading Inquiry, Old and New Cases Linked,” New York Times, February 3, 2010.
151 Slaine’s net worth from the motion to dismiss insider trading charges filed by Zvi Goffer.
152 Background on FBI agent David Makol from author interviews and various news accounts, including Susan Pulliam, Michael Rothfeld, and Jenny Stresburg, “The FBI Agent Who ‘Flips’ Insider-Trading Witnesses,” Wall Street Journal, January 20, 2012.
155 Sentencing guidelines for insider trading and rape from Matt Levine, “How Much Time In Jail Will a Little Bit of Insider Trading Cost You,” Dealbreaker, September 12, 2011, and New York Defense Lawyer.com.
156
Slaine as informant from Susan Pulliam, “Wired on Wall Street: Trader Betrays a Friend,” Wall Street Journal, January 16, 2010.
CHAPTER 8: THE FEDS MIGHT BE LISTENING
160 Slaine telling the FBI about a tip about an analyst downgrade of Amazon.com from David Glovin and David Voreacos, “Dream Insider Informant Led FBI From Galleon to SAC,” Bloomberg, December 3, 2012.
161 FBI’s belief SEC would mess up its cases from James Stewart, Den of Thieves (New York: Simon & Schuster, 1991), and James B. Stewart and Daniel Hertzberg, “Siegel: American Dream Gone Bad,” Wall Street Journal, February 22, 1987.
161 Details about Roomy Khan’s cooperation with FBI agent B. J. Kang from author interviews with government officials, court documents, and Chad Bray, “Insider Informant, Some Tips Were Refused,” Wall Street Journal, August 8, 2012.
162 Doug Whitman’s advice to Roomy Khan from Kaja Whitehouse, “What value do you have if you’re not a slimeball?” New York Post, August 9, 2012.
162 Roomy Khan’s relationship with Deep Shah from Susan Pulliam, “Galleon Sinks; Informant Surfaces,” Wall Street Journal, and author interviews.
162 Roomy Khan’s various lies to federal investigators from author interviews, various news accounts, and court documents.
169 Details of Slaine’s foray as an informant, including New York City meeting places, from author interviews and various news accounts, including David Glovin and David Voreacos, “Dream Insider Informant Led FBI From Galleon to SAC,” Bloomberg, December 3, 2012.
Circle of Friends Page 35
