The Galleon case is no doubt the largest, most sweeping insider trading case brought by several coordinated government agencies.
It is shaping up to be the Feds biggest white collar accomplishment and yet another reminder that the governments tentacles reach very wide when it comes to investigating insider trading.
In the latest news involving Galleon, Doug Whitman, president of hedge fund Whitman Capital, was charged with two counts of conspiracy to commit securities fraud and two counts of securities fraud stemming from illegal trades he made in Marvell Technology Group, Polycom and Google. According to federal regulators, Whitman earned about $980,000 from the trades.
The conspiracy counts each carry a maximum penalty of five years in prison and a $250,000 fine while the securities fraud counts each carry a maximum penalty of 20 years in prison and a maximum fine of $5 million.
Menlo Park, Calif.based Whitman most recently reported $120 million in assets under management, according to the Securities and Exchange Commission.
According to the government, from 2007 through 2009 Whitman traded Marvell stock and options based on inside information provided by Karl Motey, an independent research consultant, who had obtained it from several Marvell employees. In exchange for the information, Whitman paid Motey through a soft dollar payment arrangement between Whitman Capital and Moteys consulting firm.
Motey is a former semiconductor analyst and independent consultant who earlier pleaded guilty for his role in the scandal and agreed to cooperate with federal prosecutors.
Whitman is also accused of obtaining inside information, including earnings information and other critical information pertaining to Polycom and Google from Roomy Khan, a former executive at Intel Corp. Khan is also a former employee of Raj Rajaratnams Galleon as well as Whitmans friend and neighbor, according to a separate complaint by the SEC.
Khan allegedly obtained the Polycom information from an employee at the company and the Google information from an employee of a firm that provided investor relations services to Google.
The inside information about Polycom and Google used by Whitman is the same information that the SEC has previously alleged Khan provided to many of her hedge fund contacts, including Rajaratnam as well as Robert Feinblatt and Jeffrey Yokuty at Trivium Capital, according to the SEC.
The SEC says it has charged 30 individuals in the Galleon-related scandal. It calculates that the insider trading occurred in the securities of more than 15 companies for illegal profits totaling more than $91 million.
But many observers are still waiting for the U.S. Attorney and SEC to prosecute, with the same ferocity and obsession, individuals responsible for the mortgage and financial markets meltdown in 2007 and 2008. Although there have been a handful of cases involving mortage securities fraud, these observers sense there was the same wide connective-tissue between the sellers and originators of mortgages, the packagers of the mortgage-backed securities and investors in the mortgage-backed securities that weve seen in the Galleon case.
Perhaps its easier to prove insider trading than fraud. But the Financial Crisis Inquiry Commission produced plenty of evidence of the latter.
If President Obamas new fraud task force goes after that with as much ferocity as the SEC has pursued Galleon, then we will know that the Feds care about more than insider trading.