Insider-Trading Case Grows with Arrests

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“What’s really interesting here is how deeply has the cancer spread,” said Coffee. “I’m not suggesting everyone’s dishonest, but I do think there’s more than one bad apple in this barrel.”

Rajaratnam, free on $100 million bond, has said he’s innocent.

Harold Gordon, a partner at Wall Street law firm Jones Day and former SEC Enforcement Division lawyer, said he saw several forces at work in the spate of insider-trading cases surrounding Rajaratnam.

“It’s probably not accidental that at the heart of these are hedge funds,” he said. That’s because over the past few years, hedge funds have been under immense pressure to deliver weighty returns during hard times. “You’ve got entitities trying to maximize returns in a down market.”

So those hedge fund operators are doing everything they can to get information, including pressuring friends and acquaintances inside corporations and law firms who might have the inside dope on deals. And, he said, the SEC has changed its enforcement efforts, including setting up a division focused on hedge funds, private equity, and similar entities.

And then there’s just forgetting the lessons of history.

“I think a combination of the economy and…a renewed focus by the SEC, and, as sophomoric as it may sound, you may have a younger generation of folks who the lessons of Boesky and Milkin and Dennis Levine may be lost on them,” Gordon said.

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