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David Siegal Comments on Expert-Network Participants in the Wall Street Journal
05/12/2011

The Galleon Legacy: White-Collar Wiretaps
Wall Street Journal

It isn't the verdict that will matter over time. It is how they made the case.

Testimony and wiretaps brought Raj Rajaratnam's crimes to life in unsparing, pitiful detail. Before long, Mr. Rajaratnam is expected to be paraded to prison and slowly fade into the past.

The impact for Wall Street, and the country, will live on in the courts. In deploying wiretaps, the U.S. government has forever altered the way it prosecutes insider-trading cases. This nation has been skittish about government snooping since the invention of the telegraph. And when it came to Wall Street cases, it just wasn't the way things were done. In 2008, for instance, U.S. judges approved 1,891 phone intercepts. Nearly 1,600 were for drug cases. Just 12 were for conspiracy, one of the crimes for which Mr. Rajaratnam, the founder of the Galleon Group hedge fund, was found guilty. His lawyer says he will appeal the conviction.

How much further are prosecutors willing to push?

There is one intriguing clue in a separate, but related, case involving "expert networks." These networks connect industry insiders with Wall Street investors. Earlier this year, consultants and former employees of Primary Global Research Inc., faced criminal and civil charges for allegedly passing along intimate financial details about technology companies such as Apple Inc. and Dell Inc.

But some of the charges, weren't for insider trading, in which "material" corporate information needs to be disclosed. They were for a lower legal standard called wire fraud, in which defendants need only to misrepresent themselves to their employers.

This opens the possibility of more prosecutions against people who may not seem like insiders. These expert-network participants might disclose confidential but "immaterial" data about their companies, says Haynes and Boone attorney David M. Siegal.

"There is a big gray area in between. How far are they going to wander into that gray area?" he says.

This article excerpted from the Wall Street Journal. For full text, click here. (Subscription may be required.)