The cases brought as a result of Perfect Hedge include the conviction of Galleon Group LLC co-founder Raj Rajaratnam, who was found guilty of 14 counts of securities fraud and conspiracy and was sentenced to 11 years in prison last year, and the indictment of Rajat Gupta, the former Goldman Sachs Group Inc. director accused passing tips to Rajaratnam.

Chaves said the operation was launched after cooperators and insiders reported to them that insider trading was rampant at hedge funds, an industry that manages $1.97 trillion in assets, according to Hedge Fund Research Inc. in Chicago.

Both Chaves and Jacobs say they believe that 99 percent of fund managers are honest, and, like the FBI, want to root out the one percent who aren't.

"People in hedge funds want the cheats weeded out," Chaves said. "It's so much like baseball players on steroids. They would love to get rid of them."

Fictitious Companies

Chaves said the bureau was willing to be imaginative with Perfect Hedge, a parallel insider-trading initiative called "Market Integrity," and a third called "Match Makers," an effort which targeted publicly-traded technology companies employees who passed inside information while moonlighting as expert-networking consultants.

Agents began using law enforcement techniques commonly employed against organized crime, including surveillance of targets and evidence gained through cooperators and informants. They also made ground-breaking use of court-authorized wiretaps to record crimes as they occurred, a technique first authorized to fight the Mafia, said Douglas Leff, the assistant special agent in charge of white-collar crime in New York.

Agents persuaded Karl Motey, an independent consultant who pleaded guilty to crimes, to work for the FBI in a fictitious investment firm set up by the bureau.

'Push The Envelope'

Motey, wearing a wear a wire for the FBI, recorded meetings with expert networking executives and telephone consultations with employees of technology companies like Dell Inc. and Advanced Micro Devices Inc. as they passed inside information to him.