Stephen Foley: Anti-mafia tactics were the key to exposing secret deals

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Prosecutors turned to tactics developed for fighting mafia bosses and drug gangs in their latest effort to rein in insider dealing on Wall Street.

For years, the authorities suspected widespread trading on illegal inside tips but were frustrated by their inability to pin anything on wrongdoers. In the Galleon case, which had netted 21 guilty pleas even before the guilty verdict against Raj Rajaratnam, prosecutors turned to the courts to get permission to wiretap their suspects. The result has been a treasure trove of evidence.

For Preet Bharara, the US Attorney in Manhattan, the guilty verdict against the Galleon founder is vindication for his aggressive tactics. Mr Bharara came to national prominence as a lawyer in the Senate during investigations into the politicisation of Justice Department appointments under President George W Bush. As US Attorney, he is now in the same post that launched the political career of Rudy Giuliani.

That prosecutors had turned to wiretap evidence drove home the seriousness of Mr Bharara's crusade. His investigation has already expanded beyond Galleon to examine so-called "expert networks", which charge hedge funds for access to corporate insiders and industry experts.

John Kinnucan, from the network Broadband Research, told his clients last October that he had been contacted by the FBI. "Today two fresh-faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," he wrote in an email that was leaked to the press. "We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web."

Legal experts say Wall Street is on notice. "Trade on inside information and you better start worrying about whether prosecutors are listening," lawyer Greg Little said.

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