U.S. prosecutors are investigating an international network oftraders suspected of infiltrating banks and companies to gleanconfidential information on mega-deals, according to peoplefamiliar with the matter.

The probe by prosecutors at the U.S. Attorney's Office for theSouthern District of New York is focusing on a group of stockpickers in Europe and the Middle East who have made tens ofmillions of dollars trading ahead of media reports about takeovertalks or merger announcements by companies, according to thepeople, who asked not to be identified because the matter isn'tpublic. The investigation is part of a years-long multinationaleffort, with U.S., U.K., and French prosecutors operating onparallel tracks.

The first hint of U.S. involvement came in November, whenauthorities in Serbia arrested one of the suspects, a Geneva-basedtrader, on a U.S. warrant that alleged he had committed securitiesfraud. He was extradited to the United States in May, according toTatjana Pesic, a court spokeswoman in Belgrade. Dawn Dearden, aspokeswoman for Manhattan U.S. Attorney Geoffrey Berman, declinedto comment.

The suspects appear to belong to a loose ring of more than adozen traders spread out across London, Paris, Geneva, Dubai, andother cities. Investigators suspect them of cultivating advisors,executives, lawyers, and government officials with cash and gifts,the people said. These potential sources of confidentialinformation are also being examined, they said.

U.S. prosecutors are scrutinizing the traders' use of the media,a crucial part of their strategy, according to the people familiarwith the probe. By passing on tips to financial news organizations,including Bloomberg News, the traders hoped to benefit from a popin the stock price when reporters independently corroborated thetip and published the news, the people said.

The Justice Department probe is focusing on the traders'conduct, including attempts to use the media for their purposes.The investigators have been reluctant to compel journalists tocooperate because of First Amendment protections, the peoplesaid.

Bloomberg News reporters talk to many people active in themarket and regularly receive tips from both known and anonymoussources. The news organization's policy is not to publish tipswithout confirming the information with people who have directknowledge of the matter. The policy also prohibits telling sourceswhen a story will be published.

Investigators believe the traders covered their tracks with thehelp of shell companies and complex financial instruments, thepeople said. They communicated on encrypted apps such as Telegram,Signal, and WhatsApp with burner phones that they regularly changedor used on WiFi networks without SIM cards, the people said.

Some traders stayed at arm's length from the operation andavoided trading on their own account, instead using associates,wealth managers, and brokers to buy stock without a paper trailleading to them, the people said.

As with any investigation, the timing and outcome could change,and there's no guarantee the case will move forward, the peoplesaid.

U.S. prosecutors are sharing information with British and Frenchinvestigators, the people said. They got a break when a lower-levelmember of the syndicate started cooperating with authorities, oneof the people said. A spokeswoman for the U.K.'s Financial ConductAuthority (FCA) declined to comment. A spokeswoman for France'sParquet National Financier didn't respond to a request forcomment.

—With assistance from Gaspard Sebag,Gordana Filipovic and Bob Van Voris.

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