Galleon Securities Enforcement Case: The News Reached the Funds Before the Market

The Securities and Exchange Commission alleged more than $25 million in illicit gains from insider trading in its securities enforcement case against Galleon Management. The complaint charged the firm, its founder and other participants with turning confidential earnings and takeover information entrusted to corporate employees and advisers into trades for hedge funds and a source’s personal account. If you know how an earnings number or deal update reached a trading desk, you may recognize the connections the complaint describes.

This page follows the original civil complaint’s allegations from the source of the information to the account that traded, while our insider trading page explains the broader conduct. The Securities and Exchange Commission brought its civil enforcement action in the Southern District of New York on October 16, 2009. Its complaint describes both the trades and the work relationships that made the information available.

Galleon’s Network Crossed Company and Fund Boundaries

Galleon Management was a New York investment adviser serving several hedge funds, including a group the complaint calls the Galleon Tech funds. Its founder also managed those funds’ portfolios. New Castle Funds LLC was a separate investment adviser with its own funds, portfolio manager and senior managing director. The complaint named both advisory firms and individual participants.

The person receiving a tip, the person placing an order and the account earning the profit can sit in different places. The civil complaint alleged that Galleon’s founder directed trades across funds advised by Galleon. It separately traced information reaching New Castle and trades made for New Castle funds.

The complaint traced the sources’ access to their jobs: Intel treasury and Intel Capital, McKinsey consulting and IBM acquisition diligence. The Securities and Exchange Commission alleged that sources breached duties of trust or confidence by passing material nonpublic information to people who traded.

The Akamai Technologies allegations show a tip crossing between the investment firms. The complaint alleged that an Akamai executive supplied disappointing earnings information to a New Castle portfolio manager, who traded for New Castle funds and passed the tip to Galleon’s founder. The Galleon Tech funds then built positions that would benefit from a fall in Akamai’s share price before the earnings announcement.

From a Polycom Earnings Tip to a Trading Instruction

The Polycom allegations connect an executive’s earnings information to an intermediary, a fund manager and a trader. According to the complaint, a former Galleon employee approached the firm’s founder about returning to work. The founder asked whether the former employee had inside information about public companies, and the former employee offered access to Polycom information in hopes of a job and future tips in return.

The complaint identifies the intermediary’s source as a Polycom executive with access to earnings information. It alleged that the intermediary told Galleon’s founder that quarterly revenue would beat market estimates and made clear that the information came from a reliable insider. After another communication, approximately three minutes passed before the founder sent his trader this instruction:

The complaint then follows purchases in the Galleon Tech funds and sales after the earnings announcement. An employee who understands the message and the account instructions can connect the source conversation to the trading decision.

A Hotel Takeover Reached the Technology Funds

The complaint alleged that the Hilton tip came through a credit-rating assignment. In its account, a Moody’s analyst working on Hilton’s debt learned about the impending takeover through a meeting with Hilton management, then supplied that information to the same intermediary. The intermediary passed the expected transaction to Galleon’s founder before its public announcement.

According to the complaint, the Galleon Tech funds bought 400,000 Hilton shares even though their stated purpose was investment in the technology sector. The intermediary allegedly paid the rating-agency source $10,000 for the tip, while the funds made over $4 million after the takeover announcement. The tip picked the sector.

For someone inside a rating firm or transaction team, the allegation turns on access gained while doing a client’s work. The analyst’s meeting with management, the onward communication and the fund’s purchase connect that professional access to a separate trading benefit.

Google’s Earnings Passed Through a Consulting Firm

The Google allegations show how an outside service provider could hold earnings information before investors received it. An employee at Market Street Partners, a consulting firm doing public relations work for Google, allegedly supplied the intermediary with advance information about disappointing earnings. The intermediary told Galleon’s founder to short Google and identified the source as a consultant with access before the announcement.

The complaint alleged that the Galleon Tech funds bought put options, while the Galleon Captains funds bought puts, sold calls and sold stock short. These were positions aimed at benefiting from a decline in Google’s share price. The complaint connects the consultant’s information, the advice to trade and the positions in the separate funds before the earnings release.

The complaint puts the funds’ combined Google profits at over $9 million. It also alleges that the consultant demanded a quarterly fee of up to $150,000 from the intermediary to continue supplying inside information. The intermediary declined, and the tips stopped. We see an alleged business model built on a client’s confidential earnings: tips by subscription.

Intel Information and Trades as Payback

The Intel allegations describe changing positions as the confidential news changed. In the complaint’s account of one earnings cycle, Galleon’s founder first learned about lower revenue and established a short position. After the Intel contact supplied news that the company would raise its profitability target, the funds reversed course and took a long position. The complaint traces calls to Intel investor relations, communications with Galleon’s founder and instructions reaching another Galleon portfolio manager. In an earlier earnings cycle, it alleged that the funds sold their Intel position before disappointing guidance, avoiding losses when the share price fell.

The same Intel contact allegedly supplied information about the pending Clearwire and Sprint joint venture. His role at Intel Capital connected him to a business that invested in the venture. The complaint described repeated rounds of Clearwire trading close to communications between the source and Galleon’s founder.

The alleged exchange also ran back toward the source. The Securities and Exchange Commission alleged that, as payback for Intel and Clearwire tips, Galleon’s founder or someone acting for him placed trades in the source’s personal brokerage account using inside information about Hilton and PeopleSupport. The agency said those trades produced nearly $250,000 in illicit profits for the source. A source’s personal account can therefore be part of the same evidence trail as the fund accounts receiving the tips.

Acquisition Work Opened Another Information Route

The complaint alleged that an IBM executive passed Sun Microsystems earnings information obtained during acquisition diligence to a New Castle portfolio manager. Sun had supplied the results under a confidentiality agreement, and New Castle bought Sun shares before the earnings announcement, according to the complaint.

The AMD allegations followed McKinsey’s consulting work on transactions with two Abu Dhabi sovereign entities. The complaint alleged that a McKinsey director passed an update to Galleon’s founder that the parties had decided to proceed, and Galleon increased its AMD position. In both accounts, access granted for a client’s transaction allegedly became information for a fund’s trade.

Why the Time Before an Earnings Release Matters

The period before public disclosure gives companies time to compile, analyze and verify information. A 2018 Wisconsin Law Review paper, Insider Trading and the Integrity of Mandatory Disclosure, argues that insider trading can undermine that process by letting a few people profit from information produced for all investors. Its point fits the earnings allegations running through the Galleon complaint:

For someone in finance, investor relations or an outside consulting firm, that interval is working time. In the complaint’s allegations, information available through that work reached fund managers while other investors still awaited the announcement. The paper explains why the disclosure process itself matters, and the complaint shows the alleged route around it.

What an Insider Can Connect

The Galleon complaint connects professional access, confidential information, communications, trading instructions and named accounts. Our work with securities fraud evidence centers on those relationships. You may know why an executive received an earnings update, what a consultant was authorized to see, or which fund a trading instruction concerned.

The case makes that knowledge concrete. Polycom supplies the message to the trader, Hilton supplies the rating-agency meeting, and Sun supplies the confidentiality agreement and acquisition work. Your knowledge of how those records fit can turn a collection of messages and transactions into an understandable account of what happened. We work with you on a securities fraud report built around the connections you can explain.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Securities reports use the SEC’s separate whistleblower program, where eligible whistleblowers can share awards totaling 10% to 30% of qualifying sanctions collected when the action results in more than $1 million in sanctions. We assess the award opportunity tied to your information with you.

You Know How the News Reached the Desk

If you saw confidential earnings or deal information become a trading instruction, speak to one of our Whistleblower Experts about the people, messages and accounts you know. We build the case with you and bring in securities fraud whistleblower lawyers who understand tipping networks and fund trading. We stay beside you as the business knowledge you bring becomes the evidence the case needs.