Four men pled guilty earlier this month to opening a hedge fund based sheerly on information gathered from illegal, insider-trading tips.

Zvi Rosenthal, a 62-year old former vice president at Hawthorne, N.Y.-based Taro Pharmaceuticals, admitted to passing at least 24 nuggets of confidential information about the company to his sons, Amir, 29, and Ayal, 26, between 2001 and 2005.

Along with family friend David Heyman, 29, the group then opened a hedge fund, Aragon Partners, which they used to hide the root of the trades from regulators.

They further obscured the connection between Rosenthal and Taro by devising options contracts.

Securities and Exchange Commission Northeast Regional Director Mark K. Schonfeld called Aragon "a family business based on insider trading."

Aragon engaged several attorneys and accountants from Price-WaterhouseCoopers, who SEC Assistant Regional Director Bruce Karpati called people "who had every reason to know better."

Zvi Rosenthal was already on probation for making false claims to the Defense Department with respect to a contract for making military uniforms. He agreed in 2000 to a $20,000 fine and three years' probation and pled guilty to a single felony.

The Aragon four pled guilty in the U.S. District Court in Brooklyn. Each faces up to five years in prison and a $250,000 fine. Sentencing is scheduled for May.

Amir Rosenthal, formerly a corporate attorney, received at least $6,300 for a plasma television along with $66,000 from Bahram Deshad, 55, his father-in-law, in exchange for giving the tips.

In all, the family and friends gleaned $1.5 million through the scheme.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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