Manhattan U.S. Attorney Charges 14 Defendants With More Than $20 Million in Insider Trading

Manhattan U.S. Attorney Charges 14 Defendants With More Than $20 Million in
Insider Trading

Charged Defendants Include Hedge Fund Managers, Trading Firm Executives,
Lawyers and Corporate Insiders; Five Already Have Pleaded Guilty to Insider
Trading Charges

NEW YORK, Nov. 5 /PRNewswire-USNewswire/ -- Preet Bharara, the U.S. Attorney
for the Southern District of New York, and Joseph Demarest, Jr., the Assistant
Director-in-Charge of the New York Office of the FBI, today announced charges
against 14 additional Wall Street professionals and attorneys arising out of
their ongoing investigation of insider trading at hedge funds and stock
trading firms. The charged defendants include hedge fund managers and trading
firm executives, lawyers and corporate insiders. Five of the charged
defendants previously pleaded guilty to insider trading charges in Manhattan
federal court. The defendants collectively are charged with allegedly
participating in insider trading schemes that generated more than $20 million
in illegal profits.

On Oct. 16, 2009, six individuals were arrested for their alleged involvement
in the largest hedge fund insider trading case in history. The criminal
investigation, which was led by the U.S. Attorney's Office for the Southern
District of New York and the FBI, working in close coordination with the U.S.
Securities and Exchange Commission (SEC), employed various investigative
techniques including the analysis of information from the SEC, business
records obtained from relevant entities, court-authorized pen register and
telephone toll records, consensually-recorded conversations between
cooperating sources and others and court-authorized wire taps on various
telephones.

The following eight defendants were arrested earlier today:

1. Zvi Goffer, who formerly worked at The Schottenfeld Group LLC
(Schottenfeld), a broker dealer in New York, and currently operates a trading
firm called Incremental Capital (Incremental), in New York;

2. Arthur Cutillo, an attorney at the law firm of Ropes & Gray LLP in New
York;

3. Jason Goldfarb, an attorney in New York;

4. Craig Drimal, who worked in the offices of the Galleon Group (Galleon), in
New York, but is not employed by Galleon;

5. Emanuel Goffer, who formerly worked at Spectrum Trading LLC, a trading firm
in New York, and currently is associated with Incremental;

6. Michael Kimelman, currently associated with Incremental;

7. David Plate, formerly employed by Schottenfeld, and currently associated
with Incremental; and

8. Ali Hariri, a Vice President of Atheros Communications, Inc. (Atheros).

A ninth charged defendant, Deep Shah, who was formerly employed by Moody's
Investors Service, Inc. (Moody's) in New York, remains at large.

Zvi Goffer, Jason Goldfarb, Emanuel Goffer and David Plate were arrested at
their homes in New York. Arthur Cutillo was arrested at his home in
Ridgewood, N.J. Craig Drimal was arrested at his home in Weston, Conn.
Michael Kimelman was arrested at his home in Larchmont, N.Y. Ali Hariri was
arrested in San Francisco. All of the defendants except Hariri are expected
to be presented in Manhattan federal court later today; Hariri is expected to
appear in San Francisco federal court later today.

The five defendants who were previously charged and have pleaded guilty in
Manhattan federal court to insider trading crimes are:

1. Steven Fortuna, formerly a Managing Director of S2 Capital LLC (S2
Capital), a hedge fund based in Boston;

2. Ali Far, founder of Spherix Capital LLC (Spherix), a hedge fund based in
California;

3. Richard Choo-Beng Lee, former President of Spherix;

4. Roomy Khan, a California trader who served at certain times as a paid
consultant to a hedge fund based in New York; and

5. Gautham Shankar, a proprietary trader at Schottenfeld in New York.

According to the complaints and criminal informations unsealed today in
Manhattan federal court:

The 9 Defendants Charged Today In Criminal Complaints

The Goffer Insider Trading Network

Zvi Goffer operated an insider trading network through which he obtained,
passed to others and traded on material, nonpublic information (the "Inside
Information") regarding mergers and acquisitions of public companies. In
exchange for the Inside Information, Zvi Goffer and others paid sources for
the Inside Information. In an unsuccessful effort to conceal their fraudulent
schemes, Zvi Goffer and his co-conspirators used prepaid telephones to share
the Inside Information.

One of Goffer's sources of Inside Information was a Ropes & Gray attorney,
Arthur Cutillo. In violation of his duty of confidentiality to his law firm
and its clients, Cutillo provided Inside Information about several mergers and
acquisitions of public companies for which Ropes & Gray was providing legal
services prior to the public announcements of the deals. Cutillo allegedly
stole Inside Information about the following acquisitions: Avaya, Inc.
(Avaya); 3Com Corporation (3Com); and Axcan Pharma, Inc. (Axcan). Cutillo
provided the Inside Information concerning these companies to Jason Goldfarb,
another New York attorney, who in turn passed the Inside Information to Zvi
Goffer and other co-conspirators. In exchange for providing the Inside
Information to Goffer and his network, Cutillo and Goldfarb received cash
payments.

Zvi Goffer and his co-conspirators also obtained Inside Information from
another co-conspirator about the acquisition of Kronos, Inc. (Kronos), and
Hilton Hotels Corp. (Hilton) prior to the public announcements of those deals.

According to the complaint, on Sept. 4, 2007, Craig Drimal provided an
individual with a piece of paper listing the stock symbols of four companies
and disclosed that 3Com was going to be acquired. Drimal told that individual
to destroy the list and to be careful trading in these securities because
there were no public rumors that the companies on the list were acquisition
targets. The next day, Drimal told that individual that he did not want to
talk about the four stocks on the list over the telephone but said that it was
"like shooting fish in a barrel."

During the course of the government's investigation, the government used
wiretaps to obtain critical evidence against Zvi Goffer and his illegal
insider trading network. Some of the intercepted calls show that Zvi Goffer
and his co-conspirators used prepaid telephones and that they tried to
disguise their criminal conduct by collecting research reports and other
publicly available data to justify their transactions in the event that they
were scrutinized by regulators. For example, during a Feb. 18, 2008,
intercepted call, Zvi Goffer instructed Michael Kimelman:

PF Changs just had earnings and they all put out research reports the next
day. There's like eight of them out there ... So you know you print all those
out ... get everything printed out, because if we're going to make a big trade
and make a big bet and it works ... it's always good to have that on file why
you did it.

Wire interceptions also showed that Zvi Goffer and his co-conspirators were
conscious of the fact that they would go to jail if they were caught. For
example, during a Feb. 20, 2008, intercepted call with Goldfarb, Zvi Goffer
expressed concern over someone's purchase of a large number of options on a
particular stock: "[T]hey paid a nickel for them ... You know what that means?
Someone's going to jail, going directly to jail so don't let it be you,
okay?" Later, Zvi Goffer reiterated: "That's a ticket right to the
[expletive] big house." Goldfarb confirmed to Zvi Goffer that he had not
purchased the options, and Zvi Goffer responded: "Good, better that way.
Better that way. Perfect. All right then, you know what? All it does is
give me more cover."

As a result of their trades of hundreds of thousands of shares of stock based
on the Inside Information that Cutillo, Goldfarb and others provided them --
including trades in 3Com, Avaya, Axcan, Kronos and Hilton -- Zvi Goffer,
Drimal, Emanuel Goffer, Kimelman and David Plate earned profits of at least
approximately $11 million for themselves and their firms.

The Ali Hariri Complaint

Between 2008 and March 2009, Ali Hariri, a Vice President at Atheros, provided
Inside Information to a cooperating witness who managed a hedge fund in
California in exchange for advice received from that cooperating witness about
the purchase and sale of other securities. The cooperating witness caused the
hedge fund to execute securities transactions in Atheros stock based on the
Inside Information, realizing hundreds of thousands of dollars of profits.

The Deep Shah Complaint

Between 2006 and July 2007, former Moody's analyst Deep Shah provided Inside
Information concerning Hilton, a client of Moody's, to a cooperating witness
in exchange for a cash payment of $10,000, with the understanding that the
cooperating witness would use the Inside Information to engage in securities
transactions. Specifically, on July 2, 2007, Shah told the cooperating
witness that Hilton was going to be taken private the following day. The
cooperating witness purchased Hilton securities the day Shah provided that
information and the next day, and later sold those securities for a profit of
$630,000. The cooperating witness then arranged to pay Shah $10,000 in cash.
In 2006 and 2007, Shah provided Inside Information concerning Adesa, Inc., and
Kronos, to the cooperating witness. The cooperating witness realized profits
of approximately $37,000 from the Inside Information concerning Kronos.

The Five Defendants Who Have Pleaded Guilty

The Steven Fortuna Information

On Oct. 20, 2009, Fortuna pleaded guilty to a criminal information charging
him with three counts of conspiracy to commit securities fraud and one count
of securities fraud. Between July 2008 and March 2009, Steven Fortuna,
formerly the Managing Director of hedge fund S2 Capital, in three separate
conspiracies, conspired with four individuals: (1) the Managing Director of a
hedge fund based in New York; (2) a Managing Director of S2 Capital; (3) an
analyst for a hedge fund based in Chicago; and (4) the manager of a hedge fund
based in Boston. Among other things, Fortuna obtained Inside Information
concerning the quarterly earnings of a technology company and the plans of a
semiconductor company to spin off its manufacturing operations into a separate
entity. Based on that Inside Information, Fortuna executed trades which
netted profits of approximately $2.4 million for S2 Capital. Fortuna obtained
the Inside Information from a co-conspirator who provided the information
because s/he was his friend and because Fortuna provided him/her with trading
advice about other technology companies.

The Ali Far and Richard Choo-Beng Lee Informations

On Oct. 13 and 19, 2009, respectively, Richard Choo-Beng Lee, former President
of California-based hedge fund Spherix, and Ali Far, founder of Spherix,
pleaded guilty to criminal informations each charging one count of conspiracy
to commit securities fraud and wire fraud and a substantive count of
securities fraud. Far and Lee both admitted to conspiring with each other as
well as employees of several publicly traded technology companies and
individuals employed by hedge funds in New York and elsewhere. Lee also
admitted to conspiring to commit insider trading with an employee of a
California investor relations firm and individuals associated with three other
hedge funds. Far and Lee compensated certain of their sources of Inside
Information with cash payments each fiscal quarter and with Inside Information
about other companies. Far and Lee used the Inside Information that they
received to earn profits and/or avoid losses in excess of approximately $5
million in one or more brokerage accounts affiliated with Spherix.

The Roomy Khan Information

On Oct. 19, 2009, Roomy Khan pleaded guilty to a criminal information charging
one count each of conspiracy to commit securities fraud, securities fraud and
obstruction of justice. Khan lived in California, where she traded securities
on her own behalf, and also served as a paid consultant to a hedge fund
located in New York. From 2004 through November 2007, Khan conspired with,
among others: (1) an executive at a technology company headquartered in
California; (2) an analyst at a credit ratings agency located in New York; (3)
an individual who worked at an investor relations firm located in California;
(4) the manager of a hedge fund located in New York; (5) the manager of
another hedge fund located in New York; (6) a portfolio manager for a hedge
fund; (7) the President and principal portfolio manager of a hedge fund
located in California; and (8) the Managing Director at a hedge fund located
in New York. Khan compensated certain of her sources of Inside Information by
giving them other Inside Information, cash and/or by executing trades in their
personal brokerage accounts. Khan also admitted to deleting an incriminating
e-mail that she had received from a co-conspirator and attempted to deter
other co-conspirators from sending incriminating e-mails or instant messages
in light of the then-pending SEC investigation. Khan profited approximately
$1.6 million as a result of her insider trading.

The Gautham Shankar Information

Gautham Shankar pleaded guilty on Oct. 20, 2009, to conspiracy to commit
securities fraud and securities fraud. Shankar received Inside Information
from a friend in advance of the publicly announced acquisitions of Kronos and
Hilton. Shankar also received Inside Information from a proprietary trader at
Schottenfeld in advance of the publicly announced acquisitions of Avaya, 3Com,
and Axcan. Shankar shared the Inside Information, collected cash payments for
certain of the Inside Information and, along with his co-conspirators, used
the Inside Information to execute profitable securities transactions. Shankar
made hundreds of thousands of dollars in profits from his insider trading.

Mr. Bharara praised the work of the FBI and thanked the SEC for its assistance
in the investigation. Mr. Bharara also noted that the investigation is
continuing.

U.S. Attorney Preet Bharara said: "When we announced our first arrests three
weeks ago, I said this case should be a wake-up call for Wall Street. Today
the alarm bells have only grown louder. Over the last three weeks, we have
charged 20 defendants with more than $40 million worth of alleged insider
trading, and our investigation is ongoing. When criminal activity is your
business model, business as usual has to stop."

FBI Assistant Director Joseph M. Demarest Jr. stated: "Insider trading is
like betting on a game when you already know the outcome. But if you traffic
in inside information, there's always a chance the person you conspire with is
working for us. If you talk on the phone, we may be listening. Insider
trading provides an illegal competitive edge over honest players in the hedge
fund business. Our job is to ensure a level playing field through enforcement
and deterrence."

These cases are being supervised by the Office's Securities and Commodities
Fraud Task Force. Assistant U.S. Attorneys Andrew L. Fish, Reed M. Brodsky,
Marc Litt, Joshua Klein and Jonathan R. Streeter, and Special Assistant U.S.
Attorney Andrew Michaelson are in charge of the prosecutions.

The charges contained in the complaints are merely accusations, and the
defendants are presumed innocent unless and until proven guilty.

SOURCE U.S. Department of Justice

Yusill Scribner, Rebekah Carmichael, or Janice Oh, all of the Office of United
States Attorney Preet Bharara, Southern District of New York, +1-212-637-2600