Anatomy of an Insider Trading/White Collar Investigation and Prosecution

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1 Anatomy of an Insider Trading/White Collar Investigation and Prosecution 1

2 Learn of Suspected Wrongdoing Market surveillance/information from SEC or other regulators SEC market surveillance identifies suspicious trading Example Erik Franklin SEC identified suspicious trades in advance of takeover announcements SEC staff reviewed accounts and found additional suspicious trades in advance of changes in UBS analysts securities recommendations SEC staff questioned Franklin Franklin self-reported his insider trading to the U.S. Attorney s Office and cooperated 2

3 Learn of Suspected Wrongdoing FBI agents embedded with regulators Whistleblowers Information from Government cooperators in other investigations Example David Slaine Received inside information from Erik Franklin Confronted by FBI and agreed to cooperate Alerted the Government to insider trading by individual who worked in Galleon s office space (Craig Drimal) 3

4 Collect and Analyze Documentary Information Trading records Instant messages, s, telephone records Bank records Analyze records Create chronologies Confirm unusual nature of trades 4

5 Collect and Analyze Documentary Information Identify links between communications and trades Roomy Khan Rajat Gupta Joseph Contorinis Calls as transaction was falling apart Communications mirrored tipper s communications with other tippees 5

6 Approach Potential Witnesses Identify subjects of the investigation who could potentially cooperate Assemble inculpatory information for use in approach for cooperation Examples David Slaine (tippee of Erik Franklin) Brien Santarlas (attorney who misappropriated information from his law firm) 6

7 Approach Potential Witnesses Erik Franklin tip chain Franklin had a consensually recorded conversation with his source for takeover information (Robert Babcock) Using the recorded conversation, the FBI obtained the Babcock s cooperation Using this same method, FBI agents traced the tip chain back to a compliance officer at an investment bank (Randi Collotta) Roomy Khan Legal issue: Contact with represented parties 7

8 Wiretaps Wiretaps may be used when conventional techniques are not sufficient Standard for obtaining authorization to wiretap are high Probable cause that one or more individuals will speak about certain crimes over the target phone Normal investigative procedures have tried and failed or appear reasonably unlikely to succeed 8

9 Wiretaps: Example Government obtained authorization to wiretap Drimal cellphone based on, among other things Slaine/Drimal recordings Analysis of trading and telephone records Using fruits of Drimal wiretap, Government obtained authorization to wiretap cellphone of Zvi Goffer Fruits of Drimal/Goffer wiretaps and Khan recordings were used in support of Rajaratnam wiretap application 9

10 Overt Stage of Investigation Authorities may decide to protect a covert investigation by not contacting certain witnesses Once investigation is overt, authorities will contact relevant witnesses to confirm that information was material, nonpublic and disclosed in violation of a duty to obtain additional evidence related to the case 10

11 Planning for Charges and Arrests Work with law enforcement agents and regulators to assess evidence Identify possible weaknesses and conduct follow up investigation Identify targets against whom evidence is sufficient Identify potential cooperators 11

12 Planning for Charges and Arrests Time and plan arrests to not damage related investigations Presentations from defense counsel (if investigation is overt) Preparation of complaint or grand jury presentation Charge cooperating witnesses 12

13 Charges Insider trading defendants generally charged with conspiracy securities fraud SEC frequently files a parallel civil suit at the time criminal charges are filed 13

14 Post Arrest/Indictment Bail Discovery production Defense motions and hearings Suppression motions Bill of particulars Impact of parallel SEC proceedings Broader discovery in civil cases Discovery in SEC case not always stayed 14

15 Preparation for Trial Interview more witnesses Identify additional potential cooperating witnesses Dig deeper into documentary evidence Narrow focus, picking best evidence for trial Identify trial exhibits and order of witnesses Produce witness statements ( 3500 material ) 15

16 Preparation for Trial Pretrial motions to narrow or admit evidence Prepare witnesses; plan how to admit evidence Prepare demonstrative exhibits Prepare opening statement 16

17 Trial Jury selection Opening statements Government witnesses Gupta trial Contorinis trial Summary witnesses Defense cross-examination of witnesses Redirect examination 17

18 Trial Defense case (if any) Never stop investigating Rick Schutte cross-examination Never stop cutting and honing proof Closings 18