By Joseph Checkler and Joe Bel Bruno Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- A new player has emerged in the biggest hedge-fund insider trading case on record: "the Octopussy." FBI investigators say that's the nickname for Zvi Goffer, a hedge-fund manager who emerged Thursday as a key player in an alleged insider-trading scheme that authorities say pilfered about $40 million in ill-gotten gains. Goffer was charged with conspiracy and securities fraud. Investigators described his connections in the financial world as "tentacles" that connect to Galleon Group founder Raj Rajaranam, who was charged with insider trading last month. The insider trading probe, which led to Goffer's arrest Thursday, has expanded to implicate 14 people that the government claims are related to the earlier Galleon case because inside information they used allegedly came from the same original tipster. The drama reads not much different from "James Bond" films like the one that provided Goffer's moniker. The latest allegations in the case includes bags of cash, wiretapping, and witnesses worried about "rats" selling them out to all-too-eager feds. The case being built by the FBI and Securities and Exchange Commission alleges that a complicated web of informants used covert methods to disseminate and pay for insider stock tips. Goffer, who worked at Galleon from January to September 2008, is at the heart of the latest round of arrests, investigators said. Court filings show that at least a dozen others are connected to the investigation and have yet to be arrested. A lawyer for Goffer declined to comment on the charges Thursday. After leaving Galleon, Goffer moved to hedge fund Schottenfeld Group and then later co-founded his own firm, Incremental Capital; both are based in New York. Three other employees from Incremental were also arrested by the FBI and charged with conspiracy and securities fraud. A person answering the phone at Incremental said the company had "no comment at this time." Rick Schottenfeld, founder of Schottenfeld Group, said the employees named hadn't worked at the company for nearly two years, and the company is cooperating with the investigation. In November 2007, the FBI complaint says, it's believed that Goffer delivered cash in a white bag to Jason Goldfarb, a lawyer and co-defendant accused of providing inside information about a buyout of Axcan Pharma Inc. Goffer allegedly traded on that tip, the complaint said. Goldfarb was accused Thursday by the FBI and SEC with conspiracy and securities fraud. The complaint later says that in a December 2007 phone conversation, Goffer and fellow co-defendant David Plate wondered if another person was a "rat" that was trying to get Goffer to "say stuff." Both Plate and Goffer worked at Schottenfeld at the time, and both eventually moved on to Incremental. Plate was charged Thursday with conspiracy and securities fraud. Goffer and Plate eventually decided the person in question wasn't a "rat," according to the complaint. That person wound up being a cooperating witness, the complaint said. In early 2008, Goffer is recorded as having asked Plate to call him on his "bat phone," which the FBI alleges is code for a prepaid cell phone. The FBI and SEC allege prepaid cell phones were used to shield conversations from authorities. Other parts of the 24-page complaint against Goffer, some of which were mentioned by U.S. Attorney Preet Bharara and SEC Director of Enforcement Robert Khuzami in a press conference Thursday, said Goffer bit cell phone SIM cards in half in order to destroy traces of the calls. The government amended its Galleon complaint against Rajaratnam to include Goffer and some of the others charged Thursday as defendants. The SEC presented publicly a flow chart detailing the alleged insider trading ring but didn't directly say Goffer's and Galleon's trades were conducted in unison. Rajaratnam's attorneys have denied the allegations against him. Lawyers for Goldfarb and Plate on Thursday declined to comment. -By Joseph Checkler, Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com. -By Joe Bel Bruno, Dow Jones Newswires; 212-416-2469; joe.belbruno@dowjones.com (Chad Bray in New York contributed to this story)
