Case 11: Insider Trading at the Galleon Group

state of mind, of the possibility that an alternative person had actually provided
the insider tips, and of Gupta's integrity. Because the court allowed the wiretap
recordings but did not allow this evidence, Gupta's defense argued that he deserved
a new trial.
Despite these arguments, the federal court of appeals upheld Gupta's conviction,
and sub- sequently denied his petition for a rehearing. Gupta is in the process of
appealing again to the U.S. Supreme Court, but his request to remain free on bail
during this appeal was denied, and he reported to prison on June 17, 2014.
Many consider Gupta's conviction-considering his prominence and influence-to be a
powerful symbolic victory for federal prosecutors and the SEC, sending a message to
the financial sector that no wrongdoer, no matter how powerful, is safe from
recrimination.
THE IMPACT OF THE GALLEON CASE
The Galleon case is the largest investigation in history into insider trading
within hedge funds. Twenty-six people were charged with fraud and conspiracy.
Galleon closed in 2009 after inves- tors quickly withdrew over $4 billion in
investments from the company. In addition, over a dozen companies' stocks were
traded based on allegedly nonpublic information (see Table 2). These trades could
have affected the financial status of the companies, their stock prices, and their
shareholders.
The Galleon insider trading investigation was the first to use wiretaps, which are
normally only used to convict people of involvement in terrorism, drugs, and
organized crime. This set a precedent for insider trading cases, and many suspect
this method may be used more frequently in the future. Because investment firms
rely on email, phone calls, and other digital information, electronic surveillance
will likely become the technique of choice for white-collar crime investiga- tors.
Federal authorities also hope the Galleon convictions will deter other powerful
investment managers from engaging in insider trading. Manhattan U.S. Attorney Preet
Bharara said, "Unlawful insider trading should be offensive to everyone who
believes in, and relies on, the market. It cheats the ordinary investor.... We will
continue to pursue and prosecute those who believe they are both above the law and
too smart to get caught."
TABLE 2: Companies Affected by Galleon's Alleged Insider Information Network
3Com Corp
Advanced Micro Devices
Akamai Technologies
Atheros
Axcan Pharma
Goldman Sachs
Google
Hilton Hotels
IBM
Intel
Kronos
Marvell Technology Group
Polycom
Procter & Gamble
Sun Microsystems
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