SPECIAL REPORT-The FBI agent inside the Galleon case

CAMERA SHY

Cohen is so intensely private he hates being photographed and has even bought the rights to some pictures taken by freelancers. He has generally dealt with rumors and speculation about questionable trading strategies at SAC by simply ignoring them. That appears to be the strategy he is pursuing this time around as well. A lawyer for the hedge fund declined to comment.

Former SAC employees, however, have already started to talk. Lee's cooperation was secured in part because of incriminating evidence that federal authorities had captured from a government wiretap on his cell phone while working at San Jose, California-based Spherix Capital. (Kang oversaw the tap on Lee's phone.)

In pleading guilty on Oct. 13, Lee signed a cooperation agreement that requires him not only to testify about his misdeeds at Spherix, but also provide prosecutors with any evidence of alleged insider trading over an eight-year period starting in 1999. He worked at SAC for five of them, and the rest of the time was at Stratix Capital Management.

The Wall Street Journal previously has reported that after Spherix closed its doors in February, federal authorities encouraged Lee -- who had begun cooperating with the investigation -- to try to return to SAC. But Cohen refused, the Journal reported, because he was suspicious of the reasons behind Spherix's closing.

Lee is also expected to testify about any improper trading he may have done at Stratix, a hedge fund founded by two more SAC alumni, Richard Grodin and Ian Goodman. That fund, which counted SAC among its investors, closed in 2007. Grodin launched another fund, Quadrum Capital, and it too abruptly shut down this year. A few months ago, federal authorities asked Quadrum to turn over some trading records, but the government hasn't asked for anything since, said a person close to the fund.

MAKING THE CRIMINAL CASE

Of course, Kang isn't infallible. A person familiar with the wiretap applications in the Galleon case cited one example he considered overreaching by Kang in trying to make a criminal case. In that instance, Kang had to make a revision in one wiretap application because he earlier made a wrong conclusion about the identity of a person referred to as "Adam" in one of the taped phone conversations. The person in question actually worked for Galleon -- not for another "independent hedge fund," as Kang had thought, said this source.

Then again, Kang isn't working alone. The other main agent assigned to the Galleon investigation is David Makol, a seven-year veteran of the FBI's other major securities fraud task force based in Kew Gardens, Queens.

Makol had a featured role in the last big Wall Street insider trading prosecution, which centered around a former UBS (UBS.N) (UBSN.VX) managing director who took cash from a group of traders in exchange for providing them with advance notice of impending changes in stock recommendations by the investment bank's analysts.

As one of the first prosecutions to reveal the existence of an underground network of day traders and hedge fund managers who barter or buy non-public information to trade on, the UBS insider trading case has served as a road map of sorts for law enforcement in the Galleon investigation.

FRIEND OR FOE

Kang and Cohen haven't always been adversaries. In 2006, Kang was involved in bringing a criminal case against a person who tried to defraud SAC and other businesses. The case involved Michael Lair, a Montana man, who approached a lawyer defending SAC in a lawsuit the Canadian drug company Biovail Corp BVF.TOBVF.N had filed against SAC. The man had offered to provide SAC's lawyer with allegedly incriminating information about Biovail's attorneys for a fee.

In fact, the Biovail lawyers fired Lair shortly before he approached SAC and its lawyer.

Kang signed the criminal complaint against Lair, who was charged with trying to defraud SAC, Biovail and other companies. In April 2007, Lair pleaded guilty and was sentenced to 27 months in prison. He was also ordered to forfeit some $300,000 in fees he had extracted from a dozen companies that he had fleeced in the scheme.

Six months later, the Galleon investigation was well under way and Kang was onto his next assignment that has opened a new window into Steven Cohen's world. (Reporting by Matthew Goldstein and Svea Herbst-Bayliss; editing by Jim Impoco and Claudia Parsons) ((Matthew.goldstein@thomsonreuters.com; +1 646 223 5773) Svea.Herbst@Reuters.com; +1 617 856 4331; Reuters Messaging: svea.herbst.reuters.com@reuters.net))