The first securities trader to be wiretapped by federal authorities in an investigation that resulted in more than two dozen arrests and the trial of a one-time billionaire hedge fund boss pleaded guilty Tuesday to insider trading charges.
Craig Drimal became the 21st person to plead guilty in the case that was first brought in October 2009 with the arrest of Galleon Group hedge fund founder Raj Rajaratnam. At the time, U.S. Attorney Preet Bharara called it the biggest hedge fund insider trading bust in history and said it marked the first extensive use of wiretaps in an insider trading case. A jury is deliberating the fate of Rajaratnam, who the government has said earned more than $68 million in profits from illegal trades. He has pleaded not guilty.
The 54-year-old Drimal, of Weston, Conn., told U.S. District Judge Richard Sullivan in Manhattan that he knew what he was doing was wrong in 2007 when he used secrets provided by corrupt lawyers to earn profits on early trades that capitalized on Hewlett-Packard Co.'s acquisition of 3Com and TPG Capital's acquisition of Axcan Pharma Inc.
"I deeply regret my actions that have caused such great pain to my family and friends," Drimal said as he read a statement at the plea to explain why he was pleading guilty to conspiracy to commit securities fraud and securities fraud. Sentencing was set for Sept. 9.
The Drimal case has brought some embarrassment to investigators who were forced to reveal at a pretrial hearing that agents monitoring more than 1,000 calls on Drimal's phone listened longer than they should have to several calls between Drimal and his wife. Drimal's lawyer, JaneAnne Murray, said the government eavesdropped on 330 calls between Drimal and family members, including his children, his siblings and in-laws.
Sullivan rejected a request to toss out the wiretap evidence but said he was deeply troubled by an "apparently voyeuristic intrusion" by agents who monitored the calls. The judge said the wiretap was professionally conducted and generally well-executed but noted that agents should have stopped listening to calls involving Drimal's family members, including one that seemed to be a marital spat. Drimal, who has been with his wife for more than 30 years, has three children ranging in age from 11 to 18.
At the plea, Assistant U.S. Attorney Andrew Fish said Drimal knew when he was making trades involving 3Com and Axcan that his inside information had come from attorneys who were being paid cash to divulge secrets. He noted that Drimal even questioned during one phone call why the attorneys were risking going to jail.
He said the trades made by Drimal resulted in profits of more than $6.4 million. In all, authorities say the trades involving the tips from lawyers earned more than $20 million in profits.
Drimal for a time made trades as he worked out of the offices of Rajaratnam's Galleon Group. Fish said Drimal provided some of the secrets he learned to a Galleon trader.
The judge said prosecutors have determined that federal sentencing guidelines would call for Drimal to receive a sentence of six to seven years in prison, though his lawyer is likely to seek a sentence far below that estimate.
As a result of Murray's challenge to the government's practices on its wiretaps, prosecutors have said they are reviewing all aspects of the office's practices concerning the supervision of wiretaps and when monitors should stop listening.