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Report: U.S. to lift lid on 'pervasive insider trading'

U.S. officials are preparing insider trading charges against a host of financial players, including investment bankers and hedge fund managers, says The Wall Street Journal.
/ Source: staff and news service reports

U.S. officials are preparing insider trading charges against a host of financial players, including investment bankers and hedge fund managers, according to The Wall Street Journal, which cited people familiar with the matter.

The charges could surpass any previous investigations on Wall Street, and examine whether certain players garnered tens of millions of dollars in illegal profits, according to the newspaper.

The three-year investigation could expose "a culture of pervasive insider trading in U.S. financial markets", especially in ways private information is transmitted to traders through connected insiders, the newspaper said, citing federal authorities.

While the scope of the investigation is unclear it is said to focus on the use of so-called expert network firms, businesses that command big fees from hedge funds to match them up with experts in particular industries.

There has been concern for years that some experts may be passing on confidential information about public companies to traders.

'Analysts across the nation'The Journal said that consultants, investment bankers, hedge-fund and mutual-fund traders and "analysts across the nation" could be drawn into the inquiry.

The paper reported that Goldman Sachs was among the firms being scrutinized. The probe was looking into whether some investors were leaked details about health-care mergers and other transactions by bankers at the firm, the Journal said.

A number of traders at hedge funds and trading firms were also being examined to establish if they had "improperly gained non-public information about pending health-care, technology and other merger deals," the Journal said, citing its unidentified sources.

The paper said several traders at one such firm , First New York Securities LLC, had profited from mergers, including some in the healthcare sector, which were announced in 2009.

"We are one of more than three dozen firms that have been asked by regulators to provide general information in a widespread inquiry; we have cooperated fully," a First New York spokesman told the Journal.

"We stand behind our traders and our systems and policies in place that ensure full regulatory compliance," he added.

John Kinnucan, of Broadband Research LLC in Portland, Ore., told about 20 clients of an encounter with the FBI in an email he sent last month, the Journal said.

"Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," the email said, according to the newspaper.

"(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web," it added.

Probes 'at late stage'The Journal said in addition to the FBI, the Securities and Exchange Commission and federal prosecutors in New York were involved in the investigations.

It said the FBI, SEC and representatives of the Manhattan U.S. Attorney's office declined to comment.

The paper said that "key parts" of the multiple probes were "at a late stage." A federal grand jury had heard some evidence, the Journal said, but added that it was still not clear whether charges would be brought.

In October, Preet Bharara, the Manhattan U.S. Attorney, said in a speech that insider trading was a "top criminal priority," the Journal reported.

"Illegal insider trading is rampant and may even be on the rise," he said at the time.

Wall Street has been abuzz for weeks about federal authorities filing another big insider trading case that might compare to last year's Galleon Group case, in which 14 defendants pleaded guilty and the trial against the hedge fund founder, Raj Rajaratnam, is scheduled next year.

Two lawyers speaking to Reuters, who declined to be identified because they represent potential clients, said agents from the FBI had approached hedge fund traders over the past two weeks and a number of traders had contacted lawyers.