Speech by SEC Staff:
Remarks at November 5, 2009 Press Conference
Director, SEC Division of Enforcement
U.S. Securities and Exchange Commission
New York, New York
November 5, 2009
There is a basic principle that governs our capital markets, and that is that there is one set of rules, and everyone is expected to play by that one set of rules.
That principle gives investors confidence that the markets are fair.
Insider trading is a corruption of that basic principle.
It's an unfair advantage, a tilted playing field, for the most unscrupulous among us - those whose greed and arrogance drive them to betray their duties and their loyalties as professionals and as citizens.
So while today is a good day for law enforcement, it's a disturbing day as well, because we expose the apparent ease with which these Wall Street professionals, corporate insiders, analysts and lawyers disregarded the rules and their duties to clients and shareholders for kickbacks and easy profits.
Their misconduct threatens to undermine the confidence upon which our capital markets depend.
We take that threat seriously.
Those who commit insider trading, who think that there are two sets of rules, run the risk of detection by law enforcement.
And that is a trade with only one rule - and that rule is, if we prove our case, your misconduct will be known to all, you will be penalized and you may well go to jail.
* * *
There are two sets of civil charges that the SEC is announcing today as we continue our concerted effort to root out insider trading on Wall Street and in the hedge fund industry.
First, we are amending our Galleon complaint of three weeks ago by charging 13 more individuals and firms with insider trading.
This brings the total to 21 who are facing SEC charges as a result of our probe into Galleon and billionaire Raj Rajaratnam.
This insider trading ring profited to the tune of $33 million by utilizing a network of corporate insiders and financial professionals to abuse our markets.
Second, we are charging today nine defendants in an insider trading ring that included lawyers, professional traders and hedge fund managers in a $20 million scheme fueled by a lawyer who divulged confidential information involving some of his firm's clients in exchange for kickbacks.
Arthur Cutillo, through his friend and fellow attorney Jason Goldfarb, tipped the inside information to a Wall Street trader named Zvi Goffer, who was referred to as "Octopussy" - as in the James Bond movie - because of his reputation for having arms in so many sources of inside information.
Goffer would promptly tip the other traders we charge today, at times going to such extraordinary lengths to cover his tracks that he used disposable cell phones.
He gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled "you" and "me."
After the insider trading was complete, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half.
He threw away half of the phone, and then instructed his tippee to dispose of the other half.
Needless to say, these antics might be appropriate in a James Bond movie.
But they have no place among Wall Street professionals who participate in our capital markets.
The ethical and legal judgments of these defendants were flatly wrong.
They weren't close calls.
They weren't nuanced.
They weren't in gray areas.
These men and women had obligations to their employers, their clients, and our markets.
Those obligations were disregarded in favor of personal greed.
Certain moral truths should be self-evident. And there should be a moment - hopefully before you're holding a bag of cash delivered to you by somebody code-named "the Octopussy" - that causes anyone in a position to tip or trade inside information to think twice before taking such a misguided step.
And if you find yourself chewing the memory card in your cell phone to destroy any record of your misconduct, something has gone terribly wrong with your character.
* * *
Today's actions against these wrongdoers are the result of continued exemplary cooperation between the SEC, the U.S. Attorney's Office in New York, and the FBI.
I'd like to recognize our entire SEC team that has worked on these investigations.
In the SEC v. Galleon, those SEC investigators are David Rosenfeld, Sanjay Wadhwa, Israel Friedman, Jason Friedman, John Henderson and Valerie Szczepanik.
In the SEC v. Cutillo, those SEC investigators are Scott Friestad, Robert Kaplan, Brian Quinn, Anthony Kelly, Chris Swart and Jane Peterson.
An incredible effort by an outstanding group of public servants.
See also: Press Release No. 2009-235 and Press Release No. 2009-236