Today we’ve seen three stories about insider trading that smell a bit like “tickling the wire.”
As a strategy, “tickling the wire” has worked well for the Feds in the past.
Here’s one example. Samir Barai, the founder of Barai Capital read an article in the Wall Street Journal about insider trading. He freaked out and sent BBMs to Jason Pflaum, his co-worker, telling him to destroy any evidence that might be used against them.
Once the wiretaps were in place, obviously, destroying evidence was futile or worse. It added destruction of evidence to the charges against Barai.
That or something like it is the outcome the Feds are hoping for when they “tickle the wire.” They place an article with strategic details. Ideally, the people they have wiretapped will read the article, make a paranoid call or two in the heat of the moment, and the Feds will know who to focus their investigation on.
Today we saw a few articles that may or may not be government leaks. This one in the Financial Times about the Feds listening to phone calls made by 97 hedge fund and mutual fund managers. This one in the Wall Street Journal about an analyst recording calls with 11 “targets” and tricking them into divulging information. And this one in Reuters about prosecutors naming Kingdom Ridge, STG Capital and G-Core Capital in court filings, which is apparently unusual practice.
The details are sparse, inconclusive, and confusing. There’s probably just enough to freak someone out.
A lawyer who commented in the Reuters article seems to be suspicious too.
“This may be the use of a plea allocution to signal that the ship is sailing and to get the named people to cooperate in order to get others,” Daniel Richman, a professor at Columbia Law School, said of the airing of the traders’ names.
John Kinnucan hinted that the Feds were tickling the wire last week when he emailed hedge funder Lee Ainslie saying, “Yo Lee Homey, sorry to break it to me but it looks to me likely that Maverick will soon be charged with insider trading.”
He emailed Ainslie a link to this article in Bloomberg. Another article published on the same day named Nick Caputo from Kingdom Ridge Capital. UPDATE: Maverick has had no contact with anyone involved, according to a PR rep for the firm.