3rd UPDATE: 14 Charged In Insider-Trading Investigation

The arrests are the latest in an ongoing probe into insider-trading by hedge funds on Wall Street. In October, Raj Rajaratnam, founder of hedge-fund firm Galleon Group, and five others were charged criminally with insider trading. More arrests for insider trading were expected after that, and some of the individuals arrested Thursday had ties to the Galleon case.

The Federal Bureau of Investigation confirmed Thursday that agents had taken seven people into custody, including individuals in New York, New Jersey and Connecticut. Preet Bharara, the U.S. Attorney in Manhattan, is expected to discuss the case in more detail at a press conference at noon EST Thursday.

The charges outlined in three criminal complaints against nine of the individuals include insider trading and conspiracy and revolve around tips about pending mergers and acquisitions.

The individuals charged include Zvi Goffer, the founder of Incremental Capital and a former employee at Galleon and Schottenfeld Group; Arthur Cutillo, an intellectual property lawyer at Ropes & Gray LLP; Jason Goldfarb, another New York attorney; Craig Drimal, who worked in Galleon's office space, but wasn't employed by the firm; former Moody's analyst Deep Shah; Atheros executive Ali Hariri; and several individuals associated with Incremental Capital: Emanuel Goffer, Michael Kimelman, David Plate.

In court documents, prosecutors alleged Zvi Goffer operated an "insider trading network" through which he received material, nonpublic information regarding mergers and acquisitions and then traded on it, and passed it on to his co-conspirators.

"There is probable cause to believe that Zvi Goffer and his co-conspirators obtained and used for securities transactions inside information concerning mergers and acquisitions in which Ropes & Gray played a role," the complaint said.

Some of the alleged trades were made on information similar to that obtained and traded on by Rajaratnam, including the announcement of an acquisition of Hilton Hotels Corp. by Blackstone Group LP (BX) in July 2007.

Cutillo allegedly gave the inside information to another lawyer, Goldfarb, who then passed it onto Zvi Goffer.

Goffer would use the information to execute profitable securities transactions and provide inside information to other conspirators to earn similar profits. It is also believed Goffer provided the co-conspirators with prepaid cellphones so they could reduce the chances of law-enforcement detection.

The acquisitions include the 2007 deal with Avaya Inc. Avaya agreed to a merger with Silver Lake and TPG Capital, which were legally advised by Ropes & Gray. The firm also legally advised Bain Capital Partners LLC in its failed bid to acquire 3Com Corp (COMS).

Goffer worked at Schottenfeld from about January 2007 to December of that year. He then worked at Galleon until August 2008 and started an operating trading firm called Incremental Capital around that same time.

A Galleon spokesman didn't immediately comment. A person answering the phone at Incremental Capital said the firm had "no comment at this time."

A spokesman for Ropes & Gray said the firm was "deeply disappointed to learn about this situation, which suggests an extreme breach of this person's duty of trust to our clients and to the firm. We cannot comment in detail on an ongoing investigation but we are moving quickly to protect our clients and are cooperating fully with authorities."

3Com President and Chief Operating Officer Ron Sege said the company hasn't worked with Ropes & Gray since he joined the company a little more than a year ago, and declined to comment. The law firm was an adviser in Bain Capital Partners' attempt to acquire 3Com early last year, which ultimately fell apart due to U.S. government scrutiny.

A Securities and Exchange Commission spokesman declined comment.

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com

(David Benoit, Joseph Checkler, Roger Cheng and Joe Bel Bruno contributed to this report.)

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  11-05-091146ET
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