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ON JANUARY 18th the Securities and Exchange Commission charged seven hedge-fund
managers and analysts as well as two hedge funds with insider trading. The
alleged scheme involved insiders at Dell Computer and Nvidia Corporation, a
chipmaker, passing along confidential information about the companies
performance, which helped the two hedge funds, Diamondback Capital and Level
Global, make $78m.Wall Street
The American government has been scrutinising hedge funds performance and
information-sharing closely for the last four years. So far more than 60 people
have been arrested as part of the crackdown, called Operation Perfect Hedge.
In October Raj Rajaratnam, the billionaire hedge fund manager who ran Galleon,
was sentenced to 11 years in prison. Rajat Gupta, the former boss of McKinsey,
has also been charged with passing along confidential information to Mr
Rajaratnam, and his trial is expected to take place later this year.
If you are engaged in an insider-trading conspiracy what distinguishes you
from the dozens who have been charged is not that you haven t been caught; it s
that you haven t been caught yet , Janice Fedarcyk of the Federal Bureau of
Investigation said after the arrests. American prosecutors are trying to scare
hedge funds into good behaviour. More arrests and prison sentences may well get
many to listen.