Insider Trading: “The Circle of Friends”


The FBI continues to escalate their crackdown on Wall Street with their latest bust on hedge fund portfolio managers and analysts. This week seven friends have been charged with running a $62million insider trading scheme (see here).

The seven charged worked for five different hedge funds and investment firms and reaped nearly $62million in illegal profits on trades in Dell Inc, the prosecutors said.

This is eerily similar to the Galleon case and should not come as a surprise. There are numerous white collar crime cases where friends have been working in cahoots with one another. The Russian trader at UBS using “potato code” also springs to mind.
The fact is (and Catelas has been saying this for over 3 years now) that criminals cannot work in complete isolation. They need to work with trusted accomplices. Trust is gained through the building of relationships. And, it is unlikely that you will commit a crime with someone you do not trust, someone with which you have a tight bond, or strong relationship.
That is why at Catelas our fundamental premise is uncovering relationships. Our assumption is that a “circle of friends” committing a crime will not necessarily provide incriminating evidence in a email exchange. Sometimes people do make mistakes, but the thing that links these individuals is the communication exchanges they had (email, cell phone, SMS, IM, etc) lomg before the crime was committed. During the time these relationships were getting stronger. In fact, often we find that communications go “radio silent” leading up to the crime.
So our approach is rooted in Behavioral Science – we uncover communication patterns that mimic what behavioral science calls “shared experiences”. Its similar to going on a weekend camping outing with friends. Here a group of people participate in a shared experience (ie camping). After the weekend, this group will by definition have a stronger bond, having participated in a shared experience. Catelas has been able to apply this same approach to everyday business (and personal) communications. I cannot share the details of how we do it, but the results are astounding.
Our Relationship Analytics approach is used to first identify the people involved in or close to a particular investigation or case. These relationships leads us to critical conversations (topic or timeline related), which enables us to point the investigation, with laser focus, to the relevant people and the relevant documents.
The next time you are working a case and your question is: “Who else might be involved?”, think trusted relationships. For more information take a look at our website or contact me.
Rob.
(robert.levey@catelas.com)
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FCPA – coming to a mid-sized company near you! Thanks for the interview, Mike Volkov!


Having read blogs for close to 5 years now, I always look forward to this time of year when predictions are made. I tend to select my reading based on subject matter expertise and style, focusing on people I like and respect. I have also learned to leave the predictions to the experts rather than making my own!

Last week at Catelas we interviewed Mike Volkov to gain his insights into FCPA Compliance and try to get a sneak peak into 2012. If you have not already read his blog (here) I highly recommend that you do. We thought we would share a 3 minute audio clip of our interview with Mike,which covers many of the same topics, but reinforces the message through our auditory senses. I hope we played a small part in helping Mike compile his thoughts.

One key prediction that resonated with me was “FCPA coming to a mid-size company near you”. Okay, this is a play on words, but the gist was that FCPA enforcement will expand beyond large multi-national companies and into mid-size or smaller public companies. These companies, who for the large part I assume do not have the people or money resources to handle these types of inquiries, will need some help. Both in the form of advice from people like Mike Volkov but also in the form of “audits or assessments” of where to start and what to prioritize from companies like Catelas.

For example: Mid Size company  Р20% of their business (and growing) comes from China. Step 1 and Priority 1 is to understand how the company does business in China, in particular understanding the relationships it has with its Partners and 3rd Parties in China.

Our interview goes on to discuss how resource-sensitive companies can use Catelas in a very targeted and cost-effective way – ie pinpointing the relationships they have in high-risk FCPA countries where they do business that is of importance to them.

I hope you enjoy the audio clip. Feel free to contact me if you want to listen to the full webcast or discuss the topic in more detail.

Rob (robert.levey@catelas.com)