Today, the insider trading criminal trial begins against the Galleon Group hedge fund founder Raj Rajaratnam and the government says that he conspired to get illegal tips about Goldman Sachs from his friend and former Goldman Director Rajat Gupta. Gupta has not been charged criminally yet, but based upon the government strategy revealed in court last week, the possibility exists that Gupta may be a government target for criminal prosecution. At a hearing on Friday, prosecutors told the judge that they will prove that Rajaratnam conspired with Gupta to get tips about a $5 billion investment In Goldman by Warren Buffett’s Berkshire Hathaway and made significant profits on trading based on this inside information. Why then has Gupta only been charged by the SEC with civil violations? The judge asked Prosecutors whether they will present evidence that Gupta is a co-conspirator and the answer was yes and the Government has been gathering wiretapped evidence of telephone conversations for months, which are thought to be the core evidence of the government’s case including conversations between Gupta and Rajaratnam. The Government’s strategy has been an interesting one. Rajaratnam was first charged civilly by the SEC, just like Gupta and he cooperated and rendered significant information voluntarily which was used, in part, as the basis for his eventual criminal indictment. His legal team is testing the fairness of this sequence but query whether Gupta is being set up in the same way? There is also something else which has gone unstated in media coverage and analysis of this investigation and that is just how widespread a practice is insider trading of the kind alleged here? The short answer is that no one knows but a lot of people seem very nervous about what is happening in this case, as evidenced by the vast audience to the news stories published about it. Quantifying the extent and nature of insider trading on Wall Street is probably impossible but the government may be holding cards and other potential indictments as it wends its way through the lower employees to tag the managers of funds. One things is probable, if insider trading continues, those involved are likely to be a lot more careful than to have their conversations by telephone. I anticipate that the question of the relative pervasiveness of insider trading will finally be addressed soon through the use of closer scrutiny of trades via more refined algorithm data mining. Advances in this area have been significant over the past year. To be sure the market for these software tools will result in their increased usage and may answer the question to a certain degree.