BLUE COLLAR TACTICS CONTINUE TO RESULT IN GUILTY PLEAS
The much discussed blue collar tactics in white collar cases are continuing to roll up guilty pleas for the Government in the Galleon insider trading case. Yesterday, Ali Hariri, formerly an executive at Atheros Communications, Inc., pleaded guilty to a two-count information which charged him with conspiracy and securities fraud. Previously, a criminal complaint had been filed against Mr. Hariri. U.S. v. Hariri, Case No. 1:09-mj-02436 (S.D.N.Y. Filed Nov. 4, 2009). While the Galleon cases are not the first white collar cases to employ so-called blue collar tactics, they may be the most prominent example of what appears to be an increasing trend.
A court ordered wire tap is at the center of the factual allegations in the information. In January 2009, according to court papers, Mr. Hariri obtained information regarding Atheros’ future earnings announcement for the fiscal quarter and furnished it to an unidentified hedge fund operator. Specifically, during one telephone call Mr. Hariri told the hedge fund operator the revenue numbers for the fiscal quarter ending December 2008 before their public release. The hedge fund operator used this information to purchase over 500,000 shares of Atheros.
Just days after the Atheros shares were purchased, the company announced its quarterly earnings. They exceeded the expectations of analysts. Following that announcement, the share price increased by 6%. The hedge fund operator sold the shares at a substantial profit, according to the information.
The case against Mr. Hariri was initially named in a criminal complaint, filed along with two others, U.S. v. Goffer, Case No. 09 Mag 2437 (S.D.N.Y. Filed Nov. 4, 2009) and U.S. v. Shah, Case No. 09 Mag 2306 (S.D.N.Y. Filed Nov. 4, 2009) discussed here. Subsequently, indictments were handed down against several of the defendants in those cases as discussed here.
The plea by Mr. Hariri is just the most recent for the Government in these cases. Guilty pleas have also been obtained from: Anil Kumar, a former senior partner and director at international consulting giant McKinsey & Co.; Rajiv Goel, a former director of strategic investments at Intel Capital, the investment arm of Intel Corporation; and Mark Kurland, a former senior executive at New Castle LLC, the fund where Raj Rajaratnam codefendant Danielle Chiesi was employed. In the wake of those guilty pleas, a superseding indictment was brought against Mr. Rajaratnam, the founder of Galleon, and Ms. Chiesi as discussed here. The new indictment adds detail about the insider trading allegations and significantly increased the amount of the forfeiture claims. That criminal case, along with the parallel SEC actions, is currently in litigation and moving toward trial. Perhaps the real question from these cases is how many more guilty pleas and thus Government witnesses the blue collar tactics will yield before the trial date.