An international insider dealing ring run by two whizzkids at Goldman Sachs in New York involved a dozen people worldwide and made illegal profits of more than $6.7m (£3.8m), it was alleged yesterday.
Federal investigators have charged three people, including an investment banker atMerrill Lynch, who passed tip-offs about a string of giant takeover deals.
The investigators set out details of an elaborate scheme for buying and using secret information, whose cast of characters stretches from printworks employees in Wisconsin and private investors in Germany to an exotic dancer in New York.
Goldman Sachs suspended Eugene Plotkin, 26, a junior analyst in its fixed-income research business yesterday. He is accused of leading the scheme, along with David Pajcin, 29, who worked at the investment bank in 2001.
The pair are alleged to have made $300,000 from trading shares tipped in Business Week, after bribing an employee at the magazine's printing firm. But the scam went into a different league when they began bribing Stanislav Shpigelman, 23, a mergers and acquisitions analyst at Merrill Lynch.
Mr Shpigelman gave the pair advance warning of six major deals that the bank had been working on, including Procter & Gamble's $57bn acquisition of Gillette in January 2005 and the €3.1bn (£2.15bn) takeover of Reebok by Adidas in August.
The insider-dealing ring is one of the widest ever uncovered. In total, participants invested in 25 stocks ahead of big deals or the publication of magazine tips, locking in profits when the information became public.
It was unusual trading in the Reebok derivatives which first led the authorities to Mr Pajcin, who is co-operating with inquiries and has not yet been charged.
Mr Plotkin and Mr Shpigelman appeared in a New York court yesterday. A guilty verdict could land them prison terms of 70 years and 55 years, respectively. Also charged yesterday was Juan Renteria, an employee at Quad printworks in Wisconsin.
According to court papers, Mr Shpigelman holds a degree in business management from Binghamton University while Mr Plotkin has a degree in economics from Harvard University.
Federal prosecutors alleged that Mr Plotkin and Mr Pajcin passed on the tips to family and friends, including Mr Plotkin's father, a German tailor, and an exotic dancer in New York.
Goldman Sachs said it would co-operate with the investigation. Merrill Lynch said: "These allegations, if true, represent a serious breach of trust and violation of ML's fundamental principles. We do not tolerate or condone insider trading. This conduct victimises the company and the clients alike. It is outrageous, if true."
Michael Garcia, the US attorney for the southern district of New York, praised the FBI for unpicking the details of the scams. "What they tried to do was turn inside sources of information into an insider-trading business and a money-making machine," Mr Garcia said. "For a while it worked."Reuse content