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Federal authorities are at an advanced stage of insider-trading investigations that could result in criminal charges or significant civil fines against Wall Street traders and executives, a government official said on Saturday.

“We are far along in investigations of insider trading,” said the official, who spoke on the condition of anonymity because the inquiry was incomplete.

It was unclear whether the government was conducting one sweeping investigation or looking into various smaller instances of what they suspected was insider trading.

News of the inquiry’s progress was reported on Friday night on The Wall Street Journal website. The article said that federal authorities could bring insider-trading charges before the end of the year that it said “could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation.”

The government official familiar with the matter confirmed the outlines of The Journal’s article, but would not say whether arrests were imminent or whether specific companies were targets.

One person briefed on the matter characterized the investigation as a “big case,” saying it would likely result in arrests before the end of the new year, with the defendants numbering in the double digits.

The person said that the investigation had, to some extent, grown out of an inquiry into the Galleon Group.

Goldman Sachs is among the firms under scrutiny, according to a person briefed on the investigation who was not authorized to discuss the matter publicly.

The person said the inquiry involved several low-level Goldman employees, not executives.

A Goldman spokesman declined to comment.

Both the Justice Department and Securities and Exchange Commission have taken an increasingly aggressive — and public — stance in pursuing insider trading on Wall Street.

Among the government officials taking the hardest line is Preet Bharara, the US attorney in Manhattan.

“Illegal insider trading is rampant and may even be on the rise,” said Bharara last month.

“Disturbingly, many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged and wealthy insiders in modern finance. But for them, material non-public information is akin to a performance-enhancing drug that provides the illegal `edge’ to outpace their rivals and make even more money.”

Any new charges brought by the government would come on top of a widespread insider-trading case — billed by Bharara’s office as “the largest hedge fund insider-trading case in history” — that has ensnared a number of money managers and company executives, including Galleon Group co-founder Raj Rajaratnam.

Last week two more Wall Street traders were revealed to have pleaded guilty to securities-fraud charges, the 13th and 14th people to have pleaded guilty in the year-old criminal case.

In all, 23 people have been charged criminally in the investigation.

Earlier this month a judge sentenced Ali Hariri, a former executive at Atheros Communications, a technology company, to 18 months in prison for his participation in the Galleon case.

Prosecutors alleged that Hariri provided a hedge fund manager with inside information relating to his company.

The “sentencing provides another reminder of how pervasive insider trading has become and the lengths to which corrupt insiders will go to misuse confidential information for their own personal gain,” Bharara said in a statement.

“It should also remind those who might contemplate similar crimes that we will ultimately find you, prosecute you and convict you.”

Bharara’s sharp rhetoric is evocative of the insider-trading scandal during the 1980s, when Rudy Giuliani, then the US attorney in Manhattan, prosecuted top Wall Street executives using laws that had rarely been enforced.

 

The New York Times