Prosecutors say traders put up "smokescreen"

Reuters News
Posted: Jun 01, 2011 12:44 PM
Prosecutors say traders put up "smokescreen"

By Jonathan Stempel

NEW YORK (Reuters) - Three traders concocted a "smokescreen" to cover their tracks after conspiring to trade on leaked tips about pending mergers, U.S. prosecutors said on Wednesday as the government's second major insider trading trial this year neared its end.

In his closing argument, Assistant Attorney Richard Tarlowe said alleged ringleader Zvi Goffer, 34, paid cash bribes to attorneys at Ropes & Gray to learn on what corporate deals the law firm was working, to benefit Goffer's firm Incremental Capital LLC.

Tarlowe said co-defendants Emanuel Goffer, 32, and Michael Kimelman, 40, "absolutely" knew what Zvi Goffer was doing.

These defendants had "an unfair and illegal advantage over ordinary investors," who had "no way of knowing what was going on behind closed doors at a law firm in New York," Tarlowe told the Manhattan federal jury in a 2-1/4 hour closing argument.

The government's case relied heavily on evidence from often-profane wiretapped phone calls.

William Barzee, a lawyer for Zvi Goffer, countered in his summation that the government had not proven its case, and took his client's alleged incriminating comments out of context.

"God forbid somebody finds themselves in the cross-hairs of the federal government," he said. "They take absolutely innocent facts ... and they twist it to fit their story."

Closing arguments for the other defendants are expected later in the day.

The Goffers, who are brothers, and Kimelman pleaded not guilty to securities fraud and conspiracy charges.


Prosecutors said the alleged scheme involved tips on Bain Capital Partners LP's and Huawei Technologies Co Ltd's failed takeover of computer network equipment maker 3Com Corp, and private equity firm TPG Capital LP's takeover of Canadian drug company Axcan Pharma Inc.

Defense lawyers had tried to show during cross-examinations that government witnesses were not credible, and to create doubt that people who leaked tips had a fiduciary duty not to do so, a key element of insider trading.

But Tarlowe said the scheme involved the purchase of put options, a bet a stock will fall, or preparation of research on a sector, to conceal interest in any one particular stock.

"You conceal because you know what you're doing is wrong, and you don't want to get caught," Tarlowe said.

"A smokescreen is not something legitimate," he said.

Zvi Goffer did not put on a defense, while his brother and Kimelman put on brief defenses. The Goffers and Kimelman could face as much as 25 years in prison if convicted.


The trial began on May 16, five days after a different Manhattan federal jury found Zvi Goffer's former boss, Galleon Group founder Raj Rajaratnam, guilty on all 14 securities fraud and conspiracy charges in a separate insider trading trial.

Rajaratnam could face up to 19-1/2 years in prison, according to sentencing guidelines cited by prosecutors.

He is the most prominent defendant in a wide-ranging insider trading probe that has led to charges against roughly 50 people. He is so far the only one convicted at trial.

Four witnesses who pleaded guilty and cooperated with prosecutors testified against the Goffers and Kimelman.

Tarlowe recalled one phone call in which Goffer was said to be pleased that bribes had helped fund a respective honeymoon and kitchen renovations for Brien Santarlas and Arthur Cutillo, former Ropes & Gray lawyers who pleaded guilty in the case.

"I'm responsible for a honeymoon and a kitchen," Zvi Goffer was heard saying on the wiretap. "God bless."

Wednesday's summations came as jury selection was expected to begin in the insider trading trial of Winifred Jiau, a former consultant at Primary Global Research LLC. That trial is also in Manhattan federal court. Jiau has pleaded not guilty.

Expert networking firms such as Primary Global use consultants to match industry experts with money managers. About 13 people have been charged in that part of the insider trading probe. Eight have pleaded guilty. Jiau is the first to go to trial.

The case is U.S. v. Goffer et al, U.S. District Court, Southern District of New York, No. 10-00056.

(Reporting by Jonathan Stempel; Editing by Martha Graybow and Gerald E. McCormick)