Now That Raj Has Been Convicted, The Expert Networks Are Back In The Spotlight


The Raj Rajaratnam trial has obviously been all-consuming in terms of all matters insider trading.

Now that Raj has been convicted, the government’s attention will return to the sweeping insider trading investigation that began to explode in late 2010, and continued into this year: the Expert Network round.

Essentially the second phase of the government’s probe of insider trading in the hedge fund industry, the “expert network probe” stems from the original Galleon investigation.

It has focused on tips passed on by third-party “experts” and middlemen, rather the traditional person-to-person insider trading we saw prosecuted in the Raj trial.

But it is clear that that phase and any new charges had to take a backseat while the Rajaratnam trial proceeded.

In fact, the SEC’s insider trading charges against former Goldman Sachs exec and McKinsey head, Rajat Gupta, caused a huge fight between federal prosecutors and regulators because the U.S Attorney’s office thought that charging him so close to the beginning of Raj’s trial, “might be viewed as prejudicial to the criminal case against Rajaratnam.” Mary Shapir even became personally involved in the fight.

There have already been several arrests made already in this chapter of the investigation. Experts from Primary Global, an expert network firm based in California, have been arrested and pleaded guilty. Traders with which those experts exchanged information, have also been charged and some have pleaded guilty.

SAC Capital has featured prominently in this probe — hedge funds launched by several former portfolio managers received subpoenas and some were raided, and former traders have been arrested and pleaded guilty.

With the Raj trial taking centre stage, however, that phase has been less conspicuous.

But the probe isn’t over yet, and with this morning’s conviction, it will again move into the spotlight.

In fact, a series of articles recently reintroduced this phase of the probe to the public consciousness, when it was revealed that prosecutors are looking into Steve Cohen’s own portfolio at his collosal hedge fund. Dealbook’s story was titled, “Insider Trading Cases Stain Hedge Fund Manager’s Reputation,” while Marketwatch proclaimed: “In Cohen, The Feds Circle A Big Fish.”

At the end of the WSJ article that broke the news, there was a sign of things to come:

The government is investigating numerous other individuals, and more are expected to be charged, according to lawyers and people familiar with the matter.

What does that mean?

Brace yourselves for more arrests.

In case you forgot, here’s a complete Who’s Who of the FBI’s Massive Insider Trading Investigation >