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)