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               Insider Trading in Murdoch's Buy Out of Dow Jones.
          SEC Is Slow To Challenge Heart of Wall Street's Power.
          It Has The Tools To Do This.  But Will It? It's Easier
          To Go after The "Little Guys".


                BIG OBV MOVES:

                     On 4/19/07, two weeks before Robert Murdoch announced his $5 billion offer to
               buy Dow Jones, Tiger's chart showed an OBV Line that was mysteriously making new highs
               ahead of price.  The OBV Line measures aggressive buying.  Ordinarily, the OBV Line
               stays near the level of price action.  If the stock is half way up from the year's low to
               high, the OBV Line is usually near the middle of its yearly range.  Here it was not.  I
               believe this demonstrates insiders, who knew what Murdoch was about to do, were buying
               Dow Jones stock very aggressively.
               wpe2D.jpg (58552 bytes)

                                 DOW JONES WAS SLOW TO REVEAL THE OFFER

                  "Some top editors of the Wall Street Journal learned of the offer a week before it was reported
         on May 1 by the financial news network CNBC and confirmed by Dow Jones, but decided to hold the
         story because they were initially told of the offer on a confidential basis by Rupert Murdoch."
         ( http://www.nytimes.com/2007/05/09/business/media/09insider.html    )

                                   THE SEC KNOWS WHO THE BUYERS WERE IN DJ.
                            BUT DOES NOT ACCUSE THE "BIG CHEESE". 

                            HE IS TOO WELL-CONNECTED.

                 Insider Trading in Hong Kong is a "way of life". It is not illegal.  It is unclear what the
           SEC will end up doing. 
David (now Sir David) Li was elected to Dow Jones Board of Directors
           twenty tears ago,  He is considered the likely source of the leak.
Li id also the chairman and chief
           executive of the Bank of East Asia LtdDow Jones, which publishes The Wall Street Journal, is
           conducting its own investigation into his actions. "Hong Kong....is a paradise for inside traders from the
           big families that dominate much of the economy and have close links to a bureaucracy notorious for its
           kid-gloves approach to the local oligopolies which reward them with cushy post-administration jobs."

           ( Source: http://www.asiasentinel.com/index.php?option=com_content&task=view&id=486&Itemid=35 )


                "I hope the SEC gets hold of Sir David Li and throws him in stocks. No not the kind he was
           trading in but the kind medieval criminals were put in. As someone knighted and with a honorary
          Doctorate Degree from Cambridge, he should know better. Some may say insider trading seems like a
          victimless crime, but those investors who had their stock called away were wrongfully robbed of the higher
          buyout prices. It is truly sad some of the individuals who have been caught doing this in recent years.
          They are smart educated successful individuals who should know better. They deserve the punishment
          they get for knowingly breaking the law."
Source: Kevin Kersten

                   On January 3rd, 2008, the Securities Exchange Commission has not named Li as a defendant
           or accuse him of any wrong doing
.  Instead it accused two Hong Kong residents, Kan King Wong
           and Charlotte Ka On Wong Leung, a married couple of "widespread and unlawful trading activity” in documents
           filed in Federal District Court in New York.  The U.S. SEC .has previously frozen the brokerage accounts
           of the Hong Kong couple, Kan King Wong and Charlotte Ka On Wong Leung. No explanation was
           given by the SEC how they got this inside information or how they got the money to buy the stock!

          (Source: http://futuresnews.org/markets/sec-insider-trading-on-dow-stock-9/ )

           "They are accused of making about $8.2 million from the "highly suspicious" trading of Dow Jones stock.  The
           couple bought 415,000 shares of  Dow Jones stock in mid-April before selling them ... just days after the
           shares shot up 58 percent when news ... $5 billion offer became public.  Some of the Dow Jones stock purchases
           were financed by $3.1 million transferred to Wong by her father, Michael Leung Kai Hung, a retired Hong Kong
           businessman, on April 18, according to court filings.  On April 13, according to SEC filings, the Wongs began
           buying shares of Dow Jones stock in two jointly owned Merrill Lynch brokerage accounts. That was
           several days after the chief executive of Dow Jones, Richard Zannino, had briefed several directors
           on the potential offer from the News Corporation...  T
he initial purchases of Dow Jones shares more than
           quintupled the value of their portfolio, which was worth $1.2 million in early April. Because the trades took
           three days to clear, regulators said, the Wongs relied on various wire transfers to finance the purchases. On
           April 18, Michael Leung transferred $3.19 million into the couple's Merrill Lynch accounts.  Meanwhile, the
           Wongs bought another 215,000 shares of Dow Jones in the two weeks before the offer was announced.

               "According to U.S. regulators, an unknown individual transferred another $3.99 million from a JPMorgan bank
           account in Brussels into the Wongs' Merrill Lynch account. That amount, regulators said, corresponded with
           a large stock purchase made on April 17. In addition, the Wongs used a $4.8 million margin loan to buy
           additional Dow Jones shares. On Thursday, regulators said, an unknown individual wired another $2.8 million
           from the Brussels bank account to close the gap.  All told, the Wongs bought more than 415,000 shares of
           Dow Jones stock from April 13 to April 30 at an average closing price of $35.14, U.S. regulators said.
           Their holdings were worth more than $15 million. 
By May 1, the stock shot up to more than $56 a share
            on news of the bid. When the couple sold ... they stood to make a profit of more than $8.1 million."
May 8, 2007 http://www.iht.com/articles/2007/05/09/business/09insider.php )

                                Insider Call Options' Buying in Dow Jones

                        Even better proof is the sudden jump in the volume of Dow Jones call options
              just before Murdoch made his offer to buy Dow Jones 67% above its close.  Read what
              Kevin Kersten wrote about the jump in Dow Jones option trading volume the day
              before the announcement.
                       "I was sitting at my desk when someone said look at Dow Jones & Co. (NYSE: DJ).
              Murdoch's News Corp. (NYSE: NWS) just made a bid. A couple of keystrokes later I saw the stock
              was up about 50%. I then heard the comment everyone always makes... "I should have bought that one
              yesterday." Thanks, but a little too late.  But then I looked a little further and it seems like someone has.
              A look at the open interest indicates that there are 4,518 contacts open on the September DJ 45 calls
              (DJII) and 3,464 options traded yesterday. In fact, I am showing there was no volume on that option
              strike since February 1, and then yesterday there was suddenly 3,464 contracts traded and today the
              stock is up 50%. Interesting.
                       "Those 3,464 contracts were traded at 35 cents or less. Each option contract represents an interest
              in 100 shares of stock. So if they were bought, that is a $121,240 bet the stock was going to go up. The
              stock is trading in the area of $55 so that means those 45 calls are worth over $10 each. I don't know
              about you, but $0.35 to $10 literally overnight looks like a nice return to me. Too good to be true. That
              $121,240 investment is now worth $3.4 million. If that 3,200% rate of return isn't good enough, check
              out the 5,000% on the June 40 calls. There were 641 contracts of June 40 calls (DJFH) bought at 0.30
              for $19,230 yesterday which turned into $961,500 overnight. While I do not have the resources of the
              SEC and those traders are innocent until proven guilty -- and they could have been just plain "lucky"
             -- this sure looks like insider trading."
http://www.bloggingstocks.com/2007/05/01/3-4m-of-insider-trading-on-dow-jones-calls/ )
                       "The chances of this being just shrewd timing are zero," said Jon Najarian, a founder of OptionMonster.com,
              a site that studies unusual trading patterns.


                          Compare the silence from the SEC in this case with how they moved after a Croatian lady who
               in August 1, 2005 took $130,000 and made $2 million by the next day.  She had purchased $45 and
               $50 call options on Reebok.  In this case the SEC did investigate.  Here is the story as told by CNN.

                                 Partners in crime By Barney Gimbel, Fortune writer-reporter  October 4 2006                 

In the summer of 2005, Elvis Santana was looking for some stock market advice. The 22-year-old assistant at Macy's had a stack of do-it-yourself trading books, a subscription to Investor's Business Daily, and about $30,000 saved up. But he still wasn't really sure where to start. So when his younger brother told him about a friend of his, a smart, polished guy named David Pajcin ("Jeff" to his friends) who had worked on Wall Street, Santana was eager to pick his brain. When they met at a Barnes & Noble in Brooklyn, they hit it off.

Pajcin, then a 28-year-old former Goldman Sachs analyst, was personable and self-assured, the kind of guy who attracts friends easily and girlfriends even more easily. He told Santana he was starting his own hedge fund and would be happy to teach him some investing basics. He even offered to share some of his stock picks. All Santana had to do was give him a cut of any earnings. Soon after their meeting, Santana opened a brokerage account. His first buys were shares of clothing retailer Casual Male (Charts) and call options of FedEx (Charts) - both tips from Pajcin. Within a day his buying and selling had netted him a profit of $4,662.

About six weeks and numerous trades later, though, Santana complained to Pajcin that he was back where he'd started. Once again Pajcin was happy to help out with a tip. "Jeff called me with something he said was solid," Santana says. The stock was Reebok (Charts), then trading at about $42. Beginning on Monday, Aug. 1, Santana bought 465 call options and 520 shares. On Wednesday, when Pajcin called about getting his cut, Santana checked his account balance. He was up $463,279. "I was like, 'Oh, my God,' '' he says.

That same day, Aug. 3, David Markowitz, then a 34-year-old lawyer and an assistant regional director of the Securities and Exchange Commission's New York office, was reading the Wall Street Journal on his subway ride to work. As he skimmed the front page, he read that Germany's Adidas-Salomon AG was "close to buying rival Reebok International Ltd. for about $4 billion in what would be a big bid by two former giants of the athletic-footwear industry to challenge the long-running supremacy of Nike Inc." The Journal reported that Adidas was expected to pay about $59 a share for Reebok, a 34% premium over the $43.95 at which the stock had closed on Tuesday. That afternoon Reebok rose to almost $60.

Markowitz had forgotten about the deal until about 5 P.M., when a fax arrived on his desk. The SEC's Market Surveillance Unit in Washington had received a tip from the Philadelphia Stock Exchange that some people had been buying a lot of Reebok call options over the past few days - 2,952 calls for Reebok had been traded on Monday, and another 2,315 on Tuesday, compared with average daily volume of 112 the previous week. The options traded were as much as $8 "out of the money," and most were due to expire soon. That meant whoever had bought them was making a very confident bet that Reebok's stock was about to soar.

When Markowitz got a breakdown of the Reebok transactions, he saw that most of the options had been purchased by a handful of people in Croatia, Germany, New York, and California. Sonja Anticevic of Croatia had purchased 1,997 call options - 38% of all the options traded in the past two days - and 240 shares of Reebok. She had made $2,044,161. "We knew something was clearly fishy," says Markowitz. He also learned there was a pending request to wire $870,000 of the proceeds to a bank in Salzburg, Austria. "That's when we realized we had an emergency on our hands," Markowitz says. "Once the money is gone, you often never see it again."

Two days later, on Friday, Aug. 5, the SEC filed a lawsuit against Anticevic to freeze the money until investigators could figure out what was going on. When the news hit Croatia, reporters swarmed her apartment in a working-class suburb of the small southern city of Omis. Briefly appearing on her doorstep on Sunday, Anticevic told reporters she "never bought a stock and I have no idea how that works." Neighbors said she had been working as a cleaning lady to supplement the monthly pension of 1,600 kuna (about $263) she received for decades of work as a seamstress in a local underwear factory. She lived with her husband and daughter in a two-room apartment provided by the factory. The family had no computer. Croatian reporters calling the SEC for comment passed on the fact that she did, however, have a nephew in New York named David Pajcin.

That tip led SEC investigators, FBI agents, and lawyers from the office of the U.S. Attorney for the Southern District of New York not only to Pajcin but eventually to another young man, Eugene Plotkin. The two smart and ambitious sons of immigrant families had met in 2000 as trainees at Goldman Sachs. Over the next five years, Pajcin, who soon left Goldman, and Plotkin, who stayed on, worked and partied together. They also, according to Mark Schonfeld, director of the Northeast regional office of the SEC, ran "one of the most widespread, varied, and premeditated insider trading rings we have ever prosecuted." Their total take was not enormous - only about $7 million - but for sheer brazenness, Schonfeld says, Plotkin and Pajcin have few peers.

Now the two, along with 15 others, have been sued by the SEC for insider trading. Plotkin, Pajcin, and four others have also been indicted on federal criminal charges of insider trading and conspiracy. Plotkin maintains his innocence. Pajcin has pleaded guilty and is helping the government try to convict his friend.

The players

David Pajcin (pronounced PIE-chin) was a charmer and a young man in a hurry. Funny and attractive, with a tall body-builder's frame, he was born and raised in Clifton, N.J., a son of Croatian immigrants. He excelled in school and athletics, earning a spot on the nationally ranked basketball team at Saint Anthony High School in Jersey City. When it came time for college, Notre Dame offered him a full scholarship. There he flew under the radar, majoring in economics and not releasing his photo for the yearbook. Soon after graduating cum laude, he landed a job in the commodities group at Goldman Sachs.

Like most young traders, Pajcin had to put in long hours, his time split between desk work and the crude oil or natural gas pits of the New York Mercantile Exchange. "I was like, no, I can't handle this," Pajcin would later tell SEC investigators. "I just didn't want to wait like four years and then still be on the floor." So after only 5˝ months at Goldman, Pajcin left for a series of jobs, none lasting longer than a few months, at small brokerage firms, day-trading shops, and a bond futures trading company. He finally stopped working for securities firms in 2003. "We thought when we hired him he'd be great," says Mark Shales, his supervisor at Goldenberg Hehmeyer & Co., a brokerage where Pajcin worked for a few months. "He had all the right pedigrees: Notre Dame, Goldman. But he never found his niche. He didn't hang out with any of the other traders or spark any friendships. He just kind of came and went." (Now in a federal holding facility in Brooklyn, Pajcin declined to comment for this story.)

Pajcin did, however, make and keep the friends he wanted, and Plotkin was one of them. Plotkin, who sat down with Fortune for his only interview to date (under the watchful eye of his lawyer, who would not let him discuss the charges against him), downplays their relationship. "We sat kind of close together in the back of the room," Plotkin says of their meeting at a training session at Goldman, "He's a very socially outgoing person who makes friends easily, and I was just one of those guys.... I wouldn't say we were close."

Plotkin was born in Moscow but grew up outside San Francisco. His family, he says, "came here for the American dream, that if you work hard and you do all the right things, you can achieve." After a year at the California Institute of Technology, he transferred to Harvard, where he majored in economics, wore a black leather jacket, and played lots of pool.

At Harvard he also got into competitive ballroom dancing. "It just felt right," he says. "When you're in front of everybody, you get a chance to emote. You make yourself very vulnerable and show who you are and who you can be." By the time he graduated in 2000, he was a star of the Harvard-Radcliffe Ballroom Dance Team.

Plotkin often told college friends his drive came from having grown up in modest circumstances. "Being an I-banker was that success," one remembers. "To him it symbolized the money and prestige he grew up living without." So it was no surprise to those who knew him that he opted for Goldman Sachs and the promise of money and prestige. He started as an analyst in the fixed-income research division and was eventually promoted to associate, a job that paid a base salary of about $100,000 before a sizable bonus. He also kept dancing. "My days at the office would start early and end late - maybe around 7 or 8 - and then I'd go to the dance studio for two hours before I went to sleep," Plotkin says. Earlier this year the Web site DanceSportInfo.net ranked him, under the stage name "Gene Michael" (Michael is his middle name), 49th in the country in the professional Latin category.

Whatever spare time Plotkin had he spent directing and starring in an independent movie he'd written and financed, alternatively titled One Way and Blindside. Plotkin plays a young Wall Streeter at the fictional Galeon Partners ("the most exclusive and reputable wealth-management firm in the U.S.," according to the script) who becomes the victim of an elaborate conspiracy. Pajcin has a supporting role as a drug dealer who ultimately betrays him. Plotkin says he submitted the picture without success to the Sundance Film Festival.

The plot

As pieced together by Fortune from SEC and U.S. Attorney's filings and interviews with investigators, the tale of Plotkin and Pajcin's alleged partnership as insider traders begins in 2004. Pajcin took a vacation in Croatia and stayed with his aunt Sonja in Omis, a seaside town near the tourist hot spot of Split. He spent his days on the beach and his nights at the clubs. One night a friend introduced him to a Croatian businessman living near Hamburg - Bruno Verinac. Pajcin later met Verinac's friend Perica Lopandic. They told Pajcin about an idea.

Most issues of Business Week contain a column by Gene Marcial called "Inside Wall Street." It is not unusual for stocks, particularly those of small companies, to move a few points on a mention by Marcial. If you could find out in advance which companies he was writing about, you could position yourself to profit nicely from such a move. (This idea had occurred to other would-be insider traders. At least three times in the past decade the SEC and the U.S. Attorney have nabbed people who got or tried to get their hands on Marcial's column early.) But since the column is closely guarded in the magazine's New York offices, the only way to get an early look would be to steal a copy from Business Week's printer. Verinac and Lopandic allegedly asked Pajcin if he would be interested in going back to the States, hiring someone to infiltrate the plant, and sharing the info with them.

Pajcin was interested, and so was Plotkin. Back in New York, the two soon placed online job listings seeking factory workers. (They didn't mention where.) One response came from Nickolaus Shuster, a 23-year-old from New Jersey. Pajcin and Plotkin allegedly met him near Union Square in Manhattan and eventually offered to pay him to move to Wisconsin and get a job at Quad/Graphics, which prints Business Week. Shuster agreed, eventually scoring a gig as a forklift operator.

By early October, prosecutors say, Shuster was ensconced in Hartford, Wis., and had settled into a routine: On Thursday morning he would steal a copy of the magazine, which is available online Thursday evening, and call Pajcin or Plotkin from the plant or his car. Pajcin would then trade on any tips Shuster had turned up, which he also passed to Verinac and Lopandic. The group's first trades, on Nov. 18, were the purchase of 6,500 shares of TheStreet.com (Charts) and 6,000 shares of Biolase Drills (Charts), a dental supply company based in Irvine, Calif. (Marcial had said Biolase would benefit from a recent management shakeup and TheStreet.com might be ripe for a takeover.) The next day they sold the shares for a profit of $3,764. All told, the group, which ultimately totaled 12 people, made $282,573 on the scheme between November 2004 and July 2005, the SEC says.

Meanwhile, at Goldman, Plotkin, still pursuing the Wall Street career his friend had forsaken, had started recruiting for the firm at colleges and business schools. He kept up with many of the students he met, offering to be a mentor and taking them out on the town for steak dinners and maybe even a trip to a strip club. One of these potential protégés was Stanislav Shpigelman, whom Plotkin met in the spring of 2004, when Shpigelman was a senior at Binghamton University in upstate New York. Both of Russian descent, the two had kept in touch.

After Shpigelman took a job as a mergers and acquisitions analyst at Merrill Lynch in July 2004, Plotkin started calling him more often. Eventually they agreed to meet on Nov. 6 at Spa 88, a Russian bathhouse nestled between a barbershop and a bodega near Wall Street. Pajcin joined them there. Shpigelman bragged about a secret takeover he was working on: Procter & Gamble (Charts) was planning to buy Gillette. He said he had even flown to Ohio, where P&G has its headquarters, to deliver files.

About two months later, on Jan. 25, prosecutors say, Shpigelman called Plotkin to say a bid for Gillette was imminent. The next day Pajcin and the rest of his trading group started purchasing out-of-the-money Gillette calls. Two days later, when P&G announced a deal to buy Gillette for $57 billion, the group made $158,930, its biggest score yet. A month later Shpigelman was at a Manhattan strip club with Pajcin and Plotkin when he got an e-mail on his BlackBerry from a co-worker confirming that pharmaceutical company Novartis had bought a majority stake in the German generic-drug maker Eon Labs. The group made $85,473 trading in advance of that deal, the SEC says.

Throughout the spring and summer of 2005, the operations were purring along. Shpigelman allegedly tipped off Pajcin and Plotkin to three more deals. Shuster, the forklift operator, had been fired by Quad back in January for undisclosed reasons (the company declines to comment), but he had continued to sneak into the plant to steal copies wearing his old uniform. In May, Pajcin hired Juan Renteria Jr. to replace him via a classified ad in the Milwaukee Journal Sentinel. By the summer, Pajcin had stopped trading in his own name, instead managing accounts in the names of his aunt Sonja and his girlfriend, Monika Vujovic, an exotic dancer he had met at a club in New York. He was also passing tips to four others, including Elvis Santana, in exchange for a share of their profits.

Of course, not all of Pajcin and Plotkin's schemes worked out, the SEC says. A plan to use strippers to coax inside information from bankers came to nothing. Another idea was even more audacious. As luck had it, Jason Smith, a high school friend of Pajcin's and now a mail carrier in Jersey City, had been empaneled on a federal grand jury in Newark investigating alleged fraudulent accounting at Bristol-Myers Squibb. Smith called Pajcin on March 18, 2005, and told him a high-ranking executive would probably be indicted. That day, Pajcin shorted 8,800 shares of Bristol-Myers. In early June, Smith called Pajcin and told him the indictment was on the way. Pajcin, using his aunt's account, shorted 10,500 shares. Mikhail Plotkin, Gene's father, bought 50 put options, and Henry Siegel, the father of an ex-girlfriend of Pajcin's, purchased 200 puts. A week later, though, Smith had to admit that he had been wrong. The company had made a deal with the U.S. Attorney, and the senior executive was not indicted. Pajcin and Plotkin's group lost about $14,500.

Seven weeks later, though, came the $6 million Reebok payday - by far the group's biggest. But only one day afterward, the SEC sent an e-mail to the address listed on Sonja Anticevic's brokerage account, which Pajcin used. The SEC had questions about those Reebok trades and the FBI was looking for Pajcin. Authorities say Pajcin, Plotkin, and Smith met at Smith's apartment in Jersey City and destroyed their laptops, hard drives, and cellphones. Soon after, Pajcin, who had done most of the trading, flew to the Dominican Republic.

The case unravels

Once the SEC'S Markowitz heard Pajcin's name from the Croatian reporter, things began falling into place for investigators. Anticevic's brokerage records, for example, had a Croatian mailing address, but computer records showed the account had been set up and managed using public wireless hotspots in New York and New Jersey. And the same hotspots had been used at the same time to access a brokerage account registered to Monika Vujovic, who investigators would soon find out was Pajcin's girlfriend. A review of the various Reebok traders' accounts showed they were investing in many of the same stocks at the same time. The SEC figured out that many of the stocks were involved in mergers or acquisitions - and that Merrill Lynch had worked on each of the deals. "It was an aha moment," says Markowitz. "It looked like there was a constant leak out of one of the biggest banks in the country."

About a week into the investigation, Melissa Coppola, an SEC forensic accountant, came into Markowitz's office. While the Merrill Lynch explanation worked for five of the stocks the group traded, it didn't for the 22 others. Then Markowitz remembered an old scam he'd heard about: "Were any of these stocks mentioned in Business Week?" he asked. When Coppola checked, she unlocked much of the rest of the case.

While investigators focused on Pajcin almost immediately, it took them a little while to discover Plotkin. His name wasn't on any of the accounts they examined, but he would crop up as one of Pajcin's most frequent e-mail and phone pals. He had bought plane tickets for Pajcin to go to Croatia, Germany, and Wisconsin, and had traveled with him to Austria and Zurich. The two had also had a joint bank account. And investigators found that Plotkin's father, Mikhail, had participated in many of the suspicious trades.

Still, the main target was Pajcin. After about three months in the Dominican Republic and Cuba (where Smith allegedly met him with $10,000 in cash) he returned to New York. He had little choice: The accounts he managed had been frozen, and if he didn't appear, the SEC could confiscate the money. "It's one thing to be abroad with $7 million," says Markowitz. "It's another thing to be abroad with zero dollars."

Pajcin looked sharp in a dark suit when he walked into a small conference room at the SEC's Manhattan offices just after 11 A.M. on Nov. 22. He was unfazed by the questions posed by SEC senior trial counsel Scott Black. (He would later tell the FBI that he had planned his answers with Plotkin.) He admitted advising many of the people involved in the case to buy Reebok, but only because he thought the stock was a bargain, not because he knew anything about a pending merger.

Pajcin held forth for the better part of seven hours on that subject, talking at mind-numbing length about the metrics he said he had applied to the stock. The SEC's Black then summarized this at length, concluding, "Have we covered all the components of your analysis with respect to Reebok specifically that you can remember, sitting here today?"

Pajcin added a few things: "The correlation of volatilities, historical and implied in terms of the S&P and just a general strong dropoff in the five-day volatility, making new highs, so those are all things I look at."

About half an hour later, Black changed the subject to Business Week. Pajcin said he didn't read it often. His answers became short. When he was shown some copies of the "Inside Wall Street" column, he said he wasn't familiar with it. Then when he was shown articles that had appeared the day he had sold stocks of the companies mentioned, he looked like "a deer in headlights," according to a lawyer who was present. His explanation? He had probably gotten the tips from two guys he had met in Croatian nightclubs, whom he knew only as "Carlo" and "Vladimir."

"How would you go about getting Carlo and Vladimir's last names?" Black asked.

"I don't know if I can get Vladimir's last name, but Carlo I think would be a function of going and just trying to find people."

"How would you know where to go?"

"Either to Zagreb or to Split ... what's cool about these countries, there is only like three major clubs, three major places everyone goes, so it would just be a function of going there and being like, 'Hey, hey, I'm a friend of Carlo....'"

"He was in a bad spot," says Black. "We knew we had him on Business Week."

When Pajcin walked out of the SEC's offices around 8:10 P.M.-almost nine hours after he started testifying - FBI agents were waiting for him. They put him under arrest for insider trading for the Business Week trades.

As the government's investigation continued, Plotkin carried on working at Goldman, Shpigelman toiled away at Merrill, and for a time Renteria allegedly kept stealing magazines from the printing plant. But while investigators knew most of what had transpired in the previous year or so, they had only enough evidence to bring criminal charges against Pajcin for the Business Week scheme. And they still didn't know who the mole was inside Merrill.


Then, in early February 2006, Benjamin Lawsky, a 36-year-old assistant U.S. attorney assigned to the case, decided to try hardball. Along with FBI special agent David Makol, Lawsky told Pajcin the government knew all about Reebok. Then Lawsky made him a proposition: Become a government cooperator in exchange for the chance of a lesser sentence. Pajcin accepted and soon spent hours telling Lawsky, Makol, and the SEC about the scheme from start to finish. (The terms of his cooperation, including which charges he has pleaded to, are sealed.)

About 9:20 A.M. on April 11, Plotkin was driving his leased black BMW south on the Palisades Parkway from his home in Rockland County, N.Y., to the Manhattan offices of Goldman Sachs. A highway-patrol car pulled him over. "I thought I was getting a speeding ticket," Plotkin says. "When the FBI arrived, I told them they had the wrong man."

That's as much of a defense as Plotkin has offered so far. He and the two forklift operators, Renteria and Shuster, are the only ones left in the scheme pleading not guilty. (Attorneys for Renteria and Shuster declined to comment.) Plotkin is under house arrest and wearing an electronic ankle bracelet after having spent two months in jail. He's set for trial in April 2007. If convicted on all counts, he could face more than ten years in federal prison.

As for the other people in the case, Shpigelman, the Merrill Lynch analyst, has pleaded guilty to one count of insider trading, and Smith, the grand jury spy, has pleaded guilty to insider trading, conspiracy, and contempt for violating grand jury secrecy rules. Both likely face about four years in prison. (Shpigelman and Smith declined to comment.)

The SEC's civil case will probably not proceed until the criminal charges are resolved. Lawyers for Elvis Santana, Monika Vujovic, Sonja Anticevic, and Henry Siegel say their clients acted on what they thought was legitimate advice. Lawyers for the other six people sued by the SEC either did not respond to requests for comment or could not be reached.

When Plotkin spoke to Fortune in early September, he talked about his plans for the future. They don't include Wall Street. His current ambition is to become a novelist and screenwriter like Michael Crichton. "I'd love to do something with writing or something creative," Plotkin says. "I never thought of it as a career choice before, but maybe I was wrong not to."

His lawyer, Edward Little, wouldn't comment on any of the specifics of the case. "What's happening to Gene is a real-life rendition of the movie he made," he says. "The bad guy in the movie is the government cooperator trying to shift blame for what he did to the good guy. Gene played the good guy there too."

Indeed, toward the end of his script, Plotkin's hero pleads, "I just want my life back."

To which Pajcin's sinister drug dealer responds, "Sorry, bud, but I don't think that's gonna happen."  Top of page

(Source: http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/02/8387505/index.htm )