Man Who Led to Rajaratnam Gets Probation

Man Who Led to Rajaratnam Gets Probation

Ex-Galleon Group LLC trader David Slaine, who helped lead U.S. authorities to investigate the hedge fund firm’s co-founder, Raj Rajaratnam, was sentenced to three years probation for securities fraud.

Slaine wore a wire to record dozens of conversations with suspects including ex-Galleon trader Zvi Goffer who were later charged with insider trading. He provided help that prosecutors from the office of Manhattan U.S. Attorney Preet Bharara called “nothing short of extraordinary.”

U.S. District Judge Richard Sullivan, who sentenced Slaine yesterday in Manhattan federal court, also ordered him to perform 300 hours of community service and pay a $500,000 fine. Sullivan praised Slaine’s cooperation, which began in 2007.

“Mr. Slaine, you have your life back,” Sullivan said at the end of the sentencing hearing. “I think you’ve earned it, by virtue of the work you’ve done over the last five years.”

Slaine’s evidence helped spur what became the biggest probe of insider trading at hedge funds, prosecutors said in a letter to Sullivan this month. His lawyer, Stephen Kaufman, said Slaine already has paid $836,000 in criminal forfeitures and to the U.S. Securities and Exchange Commission.

Slaine is now an investor at Spot, a Manhattan-based chain that provides training, grooming and daycare for dogs, according to Kaufman. Slaine also works there, Kaufman said.

‘Humiliating’
“These last four years have been humbling and humiliating,” Slaine told Sullivan at his sentencing hearing. “I am ashamed of the bad decisions that I made back in 2002, which haunt me to this day.”

Slaine, who pleaded guilty to conspiracy and securities fraud in December 2009, testified at the trial of Goffer, his brother Emanuel Goffer and Michael Kimelman, that he cooperated with federal agents for about 2 1/2 years to try to avoid prison. He faced a sentence of as long as 25 years in prison.

Slaine testified that he became friends in the late 1980s or early 1990s with Craig Drimal, another former trader who pleaded guilty.

Rajaratnam reported to Federal Medical Center Devens in Ayer, Massachusetts, last month to begin an 11-year prison sentence, the longest ever for insider trading. He was convicted in Manhattan federal court last May of 14 counts of conspiracy and securities fraud.

In a new round of arrests, prosecutors in Manhattan announced Jan. 18 that they had charged seven men who they claim formed a “criminal club” of friends and coworkers that reaped almost $62 million from insider trades in Dell Inc. shares.

Guilty Plea
Slaine pleaded guilty to trading on inside information in 2002 when he was head trader of Chelsey Capital, a hedge fund, according to the government letter, signed by Assistant U.S. Attorneys Andrew Fish, Reed Brodsky and Richard Tarlowe.

The SEC claimed Slaine used illegal inside information to trade for his own account and for Chelsey Capital. He made more than 20 trades in his own account based on illegal tips, personally profiting by more than $500,000. Both sides agreed for sentencing purposes that the total illegal gain attributable to Slaine was $2.5 million to $7 million.

Slaine was approached by the government in July 2007, according to the letter. He told investigators about possible insider trading by Drimal, then agreed to wear a wire and record conversations with him. The conversations with Drimal led to the Goffers and Kimelman, whom Slaine also recorded at the direction of the Federal Bureau of Investigation, prosecutors said.

Cooperation with FBI
Investigators used Slaine’s conversations with Drimal to get authorization for wiretaps on Zvi Goffer, Brooklyn lawyer Jason Goldfarb, former Schottenfeld Group LLC trader Gautham Shankar and Thomas Hardin, an ex-Lanexa Global Management trader, prosecutors said.

Slaine worked closely with the FBI for many months, providing general information about the securities industry and the workings of particular hedge funds, they said. In May, he testified against the Goffers and Kimelman, telling jurors he followed the instructions of FBI agents in collecting evidence for their investigation.

Slaine’s cooperation was key to convicting the Goffers and Kimelman and led to guilty pleas from nine others connected to the ring, the government said.

Government investigators used the wiretaps of Drimal and Goffer to get a warrant to tap Rajaratnam’s mobile phone, according to the letter.

Recordings of Rajaratnam’s conversations were the centerpiece of his trial and implicated others who have been charged in the investigation, including Rajat Gupta, a former Goldman Sachs Group Inc. (GS) director.

Slaine’s cooperation also led, through Shankar and Hardin, to Karl Motey, an independent consultant whose cooperation with federal investigators led to the prosecution of former Primary Global Research LLC executive James Fleishman and others connected to the expert networking firm.

The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).

source: bloomberg.com