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11:43 AM
Melanie Rodier
Melanie Rodier
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GoodFellas II: The Feds Are Watching Traders At Home

The FBI told a hedge fund trader they "had recorded his conversations for a very long time, that they knew 'everything' about him and his family and friends," sparking a debate about the rights and wrongs of wiretapping.

Imagine being jolted from your bed at 3.45 am by halogen lights in your window and a bullhorn outside.

It's the FBI, at your door.

That's what happened 18 months ago to hedge fund trader Craig Drimal and his wife Arlene. Yesterday Drimal pleaded guilty to insider trading charges in the Galleon case.

The Drimals found out that for months before that fateful morning when the FBI came to their door, their conversations, including highly intimate ones about their children and marriage—had secretly been recorded by the government.

In fact, FBI officials told Drimal they "had recorded his conversations for a very long time, that they knew 'everything' about him and his family and friends, the Wall Street Journal reports.

The Hedge Fund Lounge reports that the FBI intercepted 164 calls between Drimal and his wife during two months in late 2007 and early 2008.

The case has opened up a can of worms about the rights and wrongs of wiretapping. Wiretaps are more often used in organized crime cases, but the Galleon case marked the first time the government used them in a white collar crime case.

The FBI asked Drimal to cooperate in their investigation and threatened to arrest him and lock him up in jail for 25 years if he didn't, Mrs Drimal, a former prosecutor in the Manhattan district attorney's office, said in letters to a privacy-advocacy group, which the WSJ reviewed.

At that point, the couple "went up to our bedroom to discuss how to ensure privacy," and discussed how to find a lawyer, Mrs. Drimal wrote.

"Feeling trapped, I recommended that we go to CVS [a drugstore] in Westport to buy a prepaid phone. That terrified us and we felt panicked." she said.

Mrs Drimal worried that agents were monitoring them from an unoccupied house across the street and using her husband's cellphone as a "roving bug" that could relay private conversations in their home.

From the WSJ:

On Nov. 2, 2009, Mr. Drimal met with agents and prosecutors asking for his cooperation, she wrote, which he declined to give.

Three days later, the couple—along with their 11-year-old son, who had crawled into their bed during the night—was awakened by the lights, bullhorn and pounding on the door, Ms. Drimal wrote.

"I hurried down to the front door … on which they were impatiently banging as they hollered," she wrote, holding back their German shepherd and Staffordshire terrier.

"As soon as I opened the door, numerous agents filed into the house," she wrote. "I noticed some of them touched their weapons, eyeing the Staffordshire in particular."

"I stood there crying silently, barely dressed and attempting to cover my chest with my arms and assured them the dogs were friendly," she wrote.

Last week, Drimal lost a bid to have the wiretaps excluded because federal agents had monitored personal conversations with his wife.

In the Drimal case, defense attorney JaneAnne Murray wrote in her motion to dismiss that some of the calls between Drimal and his wife were "of an intensely personal nature that are particularly painful for the Drimals to know have been overheard."

She argued that the government had an obligation to stop listening to Drimal's calls once it became clear that he was speaking to his wife, who was not believed to have been involved in insider trading.

Some of the calls were played at the hearing while the participants, including Judge Sullivan, listened with headphones.

After listening to one of the calls, Judge Sullivan asked FBI Special Agent Frank Lomonaco if it was appropriate for the bureau to listen to a "call of that nature for that length of time?"

In a ruling, Judge Sullivan then criticized the FBI, saying their failure to stop recording when the calls became obviously personal was "nothing short of disgraceful."

From Reuters:

"I don't think that there was any question that at least a couple of the calls here were disgraceful and should not have been monitored the way they were," Judge Richard Sullivan said, according to a transcript reviewed by Reuters Legal. "It is an embarrassment to the FBI. It is an embarrassment generally. It should not happen."

Still, Judge Sullivan denied the Drimals' effort to have the calls thrown out. He said the improper recording of some calls didn't entitle the Drimals to a blanket suppression of the wiretap evidence.

In all likelihood, Judge Sullivan's decision was a wise one, eventhough the debate over wiretapping versus privacy is likely to continue.

After all, it's hard to imagine the head of a Mob family asking for wiretapped calls to be excluded from evidence due to concerns over privacy.

Even if a Mafia boss did ask the courts to exclude this evidence, it's unlikely that any judge would agree. And the law is one for all.

Late last year, U.S. prosecutors said they would continue to use wiretapping to fight future crimes on Wall Street.

Meanwhile, Bloomberg reported that hedge fund managers have begun hiring security firms “to comb their offices and homes for listening devices.”

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio
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