New York – A court filing revealed that the techniques used by the US government to uncover the intricacies of the relationships between hedge-fund managers and expert networks included secret wiretapping of communications between investment professionals and experts or consultants. One of the parties in the investigations alleges that the wiretapping was unnecessary and therefore the information gathered should be excluded from the proceedings.
The court filing, by Ethan Balogh, the attorney for James Fleishmann, a former employee of expert network Primary Global, revealed that in 2009 prosecutors pursuing insider-trading cases secretly recorded calls involving 104 callers, of which 97 were hedge-fund traders and other clients of the expert network firm. In a previous filing, Mr. Balogh said that the government gathered information on at least 50 hedge funds through 300 hours of wiretaps containing conversations with some 250 consultants or experts.
According to The Wall Street Journal, approval for the taps was granted by a judge, but it is not clear from the filing whose phones were actually tapped.
The filing seeks to prevent the government from using intercepted communications arguing that these intercepts were used as an ordinary investigative technique, foregoing traditional investigative techniques that would likely have succeeded in the this case (i.e. cooperative witnesses).
Secret wiretapping of communications is certainly under the microscope with a number of pressure groups rooting against it. Remember Rupert Murdoch’s recent closing of the 168-year-old News of the World after a phone tapping scandal broke out in the UK spreading to the US. However, the usage of wiretapping in the insider trading cases differs greatly from the media scandal – unlike journalists tapping into everyday citizen’s voicemails to search for newsworthy material, prosecutors used the technique on investors’ lines to uncover potential financial fraud. The latter usage of wiretapping might not be frowned upon as Mr. Balogh’s filing seeks.
The secretly recorded communications have armed prosecutors with key tips ultimately leading to charges of insider trading to 49 hedge-fund managers and others, of which 46 have been convicted or pleaded guilty. The suspense continues since the court has a decision to make as to include the information gathered through wiretapping into the proceedings. Integrity will keep its readers informed.