I just ran across this updated story out of Bloomberg, written by Christopher Condon, Anthony Effinger and Sree Bhaktavatsalam. It is a good solid read — and it is telling in many ways, by the things said — and left unsaid — in the pull-quotes. This is good journalism. It seems they’ve captured the essence of what is troubling the DoJ, the SEC and the FBI in these new cases — right out of the mouth of one of the members of the investigated industry. Do go read it all, but here is the bit:
. . . .Expert networks can include former employees of companies being examined, professors and doctors, Geoff Bobroff, an independent fund consultant in East Greenwich, Rhode Island, said in a telephone interview. Bobroff is part of Gerson Lehrman’s network.
Bobroff said the use of experts has risen in conjunction with the decline of traditional Wall Street research. Because of mergers, investment banks such as Goldman Sachs Group Inc. and Morgan Stanley now account for far fewer equity analysts than they did 10 or 15 years ago, he said.
Wall Street was also placed under greater regulatory restrictions after 10 firms collectively paid $1.4 billion in 2003 to settle claims they slanted their research to win banking business.
“This clearly was an outgrowth of the Wall Street settlement on proprietary research,” Bobroff said. . . .
That last bit (Bobroff’s pull-quote) gets it exactly backwards, doesn’t it?
The slanted research (as a way to win underwriting fees, or M&A advisory fees) cases — in no manner whatsover — caused this investigation. No, it was dishonesty that caused both sets of cases — the 2003 vintage, and the ones that led to this morning’s arrest in Somerset, New Jersey.
These came to the attention of law enforcement due to unusual trading patterns, patterns that reflected successful attempts to secure information from “tippers” — people whom the “tippee” knew (or should have known) was under a duty to keep the same fastidiously confidential. Each paradigm was investigated; and in 2003, multi-billion dollar civil settlements were reached. In this latest version, the “expert network” version, I predict will there will be criminal indictments — very soon.
Particularly telling in this regard, was the one wiretapped conversation the FBI detailed today, as the complaint against Chu was unsealed.
He seemed to be advising an “expert” how “not ot leave a trace” (or so he thought!) in doing whatever it was he was doing. In the criminal law, that is called mens re — or evidence of a guilty mind. In short, it is some proof (allegedly) that he knew what he was proposing was wrong — if not legally, at least morally. Otherwise, why would he not want to leave “any trace”?
He was, it is alledged, effectively encouraging and exhorting various people to violate agreements they had signed with public companies. Agreements to keep the companies’ secrets. . . secret. Or again, so it is alleged, by the US Attorney.
To be fair, though, we shall have to wait and see — once the wiretapped conversations are set in a proper and more-complete context. To see whether he was just being obsessively and unreasonably secretive in his otherwise completely lawful business dealings (afterall, we each have a fourth amendment right to keep our secrets. . . secret!) — or whether he was obsessed with secrecy in order to avoid detection, as a broker of illegal inside information, (or as a direct “tipper,” or “tippee“).