The Case
When Kohlberg Kravis Roberts and Texas Pacific Group announced a $45 billion takeover of the Texas-based utility TXU in late February, TXU’s shares spiked 13 percent. Among the investors who illegally raked in millions, the government alleges, were Pakistani banker Ajaz Rahim, 44, and Hafiz Naseem, 37, formerly of Credit Suisse. The case has turned into one of the year’s biggest insider-trading prosecutions, with civil and criminal charges filed against both men. Naseem’s criminal case is scheduled to go to trial in December; the civil case has been stayed.

The Positions
U.S. Government:
According to the government, phone calls and conveniently timed trades document a conspiracy that netted Rahim more than $5 million.
Rahim and Naseem:
Rahim, formerly of Pakistan’s Faysal Bank, and Naseem deny they discussed confidential deals.

Phone Calls
U.S. Government:
Rahim placed several trades within as little as six minutes of phone calls with Naseem.
Rahim and Naseem:
The government selectively picked phone calls between Naseem and Rahim to make its case.

Bets
U.S. Government:
Just days before the deal was announced, Rahim was trading heavily in TXU’s out-of-the-money options.
Rahim and Naseem:
Rahim says he trades a lot and makes a lot of bets. This happened to be a good one. 

The Lawyers
U.S. Government:
Assistant U.S. Attorney Joshua Klein, 39. Klein also prosecuted a counterfeiting ring that sold bootleg DVDs of movies like White Chicks.
Rahim and Naseem:
Michael Bachner, 51, head of namesake white-collar defense firm. For a time, he represented Sopranos actor Robert Iler (who played A.J.). Jay Musoff, a partner at Orrick, Herrington & Sutcliffe, represents Rahim.

Status
U.S. Government:
The civil case has been stayed pending the criminal trial, scheduled for December.
Rahim and Naseem:
Naseem is under house arrest in New York. Rahim is in Pakistan, out of U.S. jurisdiction. 

Implications
In spite of a surge in corporate takeovers, the Securities and Exchange Commission is prosecuting fewer insider-trading cases—35 in the first 11 months of this fiscal year, compared with 46 in fiscal year 2006. This trial will be closely watched, since the TXU leveraged buyout is the largest in U.S. history.