Federal Prosecutors Are Gearing Up to Take on Prop Shops, HFTs

Shockwaves spread throughout the world of high finance following the FBI's raids of three hedge funds in connection with an insider trading investigation, but this merely looks to be the tip of the iceberg as regulators and watchdogs look to sniff out malfeasance on Wall Street.

According to the New York Post, independent proprietary trading firms and high-frequency trading shops better be on the lookout, because federal prosecutors will soon have them within their crosshairs.

Citing a anonymous source, the Post said that prop shops and high-speed trading operations are being eyed because they may be helping malefactors conduct flash trades that could be tied to insider trading activity.

From the Post:

In a speech last month, Manhattan US Attorney Preet Bharara hinted that federal prosecutors are closing in on high-frequency traders and so-called proprietary trading firms. "When an institution or a trader can jump in and out of positions at the speed of light and in enormous volumes, illicit trades become easier to mask, harder to find, and subject to plausible deniability," Bharara said.

Ron Geffner, a white-collar crime lawyer at Sadis & Goldberg, said government watchdogs, since the flash crash, "are fixated on better understanding high-frequency traders and trying to protect the public from systematic risk."