Rajiv Goel, the director of strategic investments at Intel’s in-house venture arm, Intel Capital, has been arrested and charged along with five other people for allegedly taking part in what the US government describes as a “massive” insider trading scheme.
The defendants are accused of trading on insider information, allegedly netting $20 million, according to the US attorney in Manhattan Preet Bharara. The tips came from various sources at companies, hedge funds and investor relations firms, including Intel, IBM, McKinsey, Moody’s Investors Service, Market Street Partners, Akamai Technologies and Polycom.
The companies on which the defendants allegedly traded inside information include Polycom, Google, Clearwire, Akamai, Advanced Micro Devices, People Support and Hilton Hotels.
The government was able to make its case through the use of court authorised wire-tapping, the only time taps have been used to target significant insider trading on Wall Street, Bharara said in a statement.
“This case should be a wake-up call for Wall Street. It should be a wake-up call for every hedge fund manager and every Wall Street trader and every corporate executive who is even thinking about engaging in insider trading,” Bharara said. “As the defendants in this case have now learned the hard way, they may have been privy to a lot of confidential corporate information, but there was one secret they did not know: we were listening.”
Other defendants in the case include Raj Rajaratnam, managing member of hedge fund Galleon Management; Danielle Chiesi, an employee of hedge fund New Castle Funds, formerly the equity hedge fund group of Bearn Stearns Asset Management; Mark Kurland, an executive at New Castle; Anil Kumar, a director at McKinsey and Robert Moffat, senior vice president and group executive at IBM.
Goel allegedly engaged in insider trading schemes with Rajaratnam from March 2008 through October 2008 involving the stock of Clearwire, an internet service provider, the complaint states.
Goel allegedly received inside information about investments Intel made in Clearwire in the spring 2008, and shared it with Rajaratnam, violating the duties of trust and confidence he owed to Intel, the complaint states. Galleon then traded on the tip from Goel at Rajaratnam’s direction, earning a profit of $579,000. In exchange for the tip, Rajaratnam allegedly placed profitable trades for Goel in his personal brokerage account at Charles Schwab.
The alleged insider trading over Hilton took place as The Blackstone Group was preparing its $26 billion take-private of the company, one of the biggest LBOs in 2007.
An analyst at Moody’s told a government witness on 2 July, 2007, that Hilton was going to be taken private by Blackstone, according to the complaint. The witness then informed Rajaratnam about the impending transaction, telling him it was going to be a “sure thing”. Rajaratnam had Galleon buy hundreds of thousands of Hilton shares, reaping a $4 million profit, the complaint states.
Several Blackstone deals have led to insider trading charges in recent years, including Albertson's, Freescale Semiconductor and Alliance Data.