Gum-Shoes and Galleon


New York – The viral progress of the Galleon insider probe has claimed more victims. Yesterday, the SEC announced that it was charging the co-founder of Trivium Capital Management and others with insider trading.  The defendants in the case include: Mr. Bhalla, ex-senior executive at Polycom and co-founder of Trivium; Robert Feinblatt, co-founder of Trivium; Jeff Yokuty, a Trivium analyst and; Shammara Hussain, an employee of investor relations firm Market Street Partners.  Trivium itself is also named in the SEC’s Case.

Roomy Khan, who is a cooperating witness in the Galleon case indicated that she tipped the defendants, as well as Raj Rajaratnam about Polycom’s Q4 2005 results, allowing Trivium to trade on those results ahead of their release to the public, and allowing Trivium to produce $15 million in profits. Raj Rajaratnam is due to go to trial in February on charges of conspiracy and securities fraud, as well as a civil suit.

Ms. Khan is also alleged to have tipped information about the takeover of Hilton Hotels by Blackstone Group, tipping Google’s Q2 2007 earnings and tipping the takeover of Kronos Inc. by a private equity firm in 2007.

Since the beginning of the Galleon case, there have been 24 people charged in the criminal investigation, with 14 having pled guilty to date.

Our Take

The plodding, gum-shoe, approach to prosecuting this case works in favor of the investigators and weighs on those investors considering the use of primary research in general and expert networks in particular.

Those expert networks that have well-developed operational compliance platforms should arguably find increased market share in the future, because they do have strong compliance and audit trails regarding the conversations between investors and experts. Until further notice, however, investors and money managers will remain focused on reputational risk and are likely to avoid overt usage of expert networks or indeed other forms of primary research.


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