U.S. authorities have increased the number of new investigations into insider trading by almost half in the past year, building on their recent crackdown on corruption among professional traders.
James Barnacle, a supervisor of the Federal Bureau of Investigation’s economic crimes unit in Washington, said the number of new FBI investigations into insider trading was up 43 percent nationwide for the fiscal year that ended Sept. 30.
The rise in new cases follows the biggest crackdown since the 1980s. Since 2009, criminal charges have been filed against 72 hedge fund traders, company insiders and consultants by Manhattan prosecutors alone.
Last year prosecutors won the conviction of Raj Rajaratnam, the founder of Galleon Group, and about a dozen others alleging a ring of insider trading. Rajat Gupta, the former director of Goldman Sachs, was convicted in June, making him the highest ranking corporate executive charged in the clampdown.
Many prosecutors and FBI agents who handled the Galleon-era cases have left the government or been reassigned, causing some on Wall Street to think the pace of investigations may slow. However, people familiar with current criminal and civil investigations say there is an active pipeline of cases involving professional traders.
FBI agents are also trying to work more closely with market regulators who often spot irregular trading through surveillance. Mr. Barnacle said the FBI was seeking information from the Financial Industry Regulatory Authority, a self-policing body, and the Securities and Exchange Commission, to become involved in investigations much earlier.
Whether a case warrants criminal prosecution depends on the egregiousness of the conduct and often how much money was made illegally.
They have also expanded beyond hedge funds trading technology stocks to include those that trade biotech and pharmaceutical stocks, which can experience sharp movements around important drug announcements and takeovers, these people said.
In the U.S., authorities have built cases by securing co-operation of Wall Street insiders and capturing private phone calls between traders on wire taps, or court-authorized secret recordings of phone calls. In February FBI agents in New York said there were 300 people under investigation for insider trading.
Across the Atlantic, U.K. regulators have also stepped up efforts to clamp down on insider dealing, sometimes in conjunction with the U.S. On Monday, four people including a former Deutsche Bank corporate broker were charged with an alleged £3 million ($4.8 million) conspiracy in the first cases to result from the U.K.’s largest ever insider dealing probe. They are fighting the allegations.
Last week, a former analyst with SAC Capital’s Sigma Capital Management pleaded guilty in the US and agreed to co-operate with authorities. He said he shared inside information with his former boss, whom SAC placed on paid leave following the plea. Two former portfolio managers at Diamondback and Level Global are set to go to trial later this month in the same case that alleges the traders made more than $61 million in profits by trading in advance of Dell’s earnings.
—Additional reporting by Brooke Masters