Judge OKs Wiretaps in Second Galleon Trial

U.S. District Judge Richard Sullivan has agreed to let prosecutors use the Rajaratnam wiretap evidence in the upcoming second Galleon trial against five defendants accused of insider trading. The ruling parallels a similar one reached by Judge Richard Holwell in the current Rajaratnam trial. Both have some reservations with a few of the tapes but, Judge Sullivan ruled:

"Given the wiretap's scope and the substantial manpower needed to sustain it, the court concludes that, on the whole, the wiretap was professionally conducted and generally well-executed." He acknowledged mistakes were made "when agents we presumably still learning to recognize the voices of [Craig] Drimal's interlocutors as well as identify their patterns of conversation. Having reviewed the wiretap in its entirety, the court is persuaded that in the vast majority of calls, the government's monitoring of the Drimal's spousal communications was reasonable."

The five defendants include:

• Craig Drimal – it was his bid to ban the wiretaps that Judge Sullivan rejected, despite the FBI's inappropriate taping of intimate conversations between Drimal and his wife.
• Zvi Goffer – a former Galleon trader, he is accused of heading an insider-trading ring tied to the one run by Raj Rajaratnam.
• Emanuel Goffer – Zvi's brother employed by Goffer's Incremental Capital hedge fund.
• Michael Kimelman – also worked at Incremental Capital.
• Jason Goldfarb –an attorney at the law firm that leaked many tips to Goffer.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Indiana Hedge Fund Manager Sued for Fraud

Authorities in the state of Indiana have accused Keenan Hauke of stealing money from investors. According to the suit, Hauke:

“intentionally received funds from the bank accounts of Samex Partners that were illegally converted from investors, misled investors by failing to inform them that the funds they were investing would be converted to his personal use. Hauke employed a device, scheme or artifice to defraud investors of Samex Partners. Specifically, he sold investments, in the form of hedge fund interests, to investors under the guise that the hedge fund invested in liquid publicly traded securities."

Hauke's assets and those of Samex Partners, Hauke's hedge fund, were frozen last week by the case judge. Until a preliminary hearing is held on April 25, Hauke and Samex are prevented from conducting business.

Scott Noble, a former Samex employee, tipped off the Indiana Secretary of State to what he called "financial irregularities" at the firm. According to the Indiana Business Journal, when a Hauke's attorney Larry Mackey attempted to paint whistle blower Noble as a thief trying to steal clients from Samex, Noble countered that

“I did not do this to pilfer clients. I did this because there were documents that showed really bad things. I have been stunned since I found those documents. I don't think I've slept a full night since this started."

Hauke, often described as "quirky", is locally known for numerous TV appearances and, until last year, for his column in the Indiana Business Journal.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Pulitzer Prize Awarded for Magnetar CDO Stories

We recently reported on JP Morgan's ongoing attempts to negotiate a SEC settlement of its notorious Squared CDOs caper, in which it marketed securities at Magnetar's behest while Magnetar was simultaneously shorting them. Now, the Pulitzer Prize has been awarded to ProPublica for a series of articles that made the intricacies of the story accessible to just about any reader.

Reporters Jesse Eisinger and Jake Bernstein won the coveted yearly award for what the Pulitzer Prize committee called:

"…questionable practices on Wall Street that contributed to the nation's economic meltdown, using digital tools to help explain the complex subject to lay readers."

Magnetar was a central player in the series that featured cartoons and graphics to help explain the complex world of Collateralized Debt Obligations. The SEC is investigating JPMorgan Chase over its role in marketing these turkeys at Magnetar's behest. For the record, Magnetar has yet to be charged with any wrongdoing. Magnetar has informed ProPublica last year that it "did not at any time require or expect any specific assets to be purchased into the Squared."

Magnetar purchased the riskiest portions of various CDO securities, allowing banks to synthesize an offering, termed Squared. The case parallels last year's case, in which Goldman Sachs reached a settlement with the SEC over a similar issue. There, the charge was that Goldman was structuring and marketing CDOs recommended to Goldman by the Paulson & Co hedge fund, even as Paulson was shorting those same CDOs. The settlement cost Goldman $550 million. The charges were that the CDOs were dogs and that Goldman was shafting its customers as it and Paulson profited on the loser CDOs.

"This is the kind of thing that the mainstream media's doing less and less of," Eisinger told the Associated Press. "We're deeply grateful that it's being recognized."

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC