ON JANUARY 18th the Securities and Exchange Commission charged seven hedge-fund managers and analysts as well as two hedge funds with insider trading. The alleged scheme involved insiders at Dell Computer and Nvidia Corporation, a chipmaker, passing along confidential information about the companies' performance, which helped the two hedge funds, Diamondback Capital and Level Global, make $78m.

The American government has been scrutinising hedge funds' performance and information-sharing closely for the last four years. So far more than 60 people have been arrested as part of the crackdown, called “Operation Perfect Hedge.” In October Raj Rajaratnam, the billionaire hedge fund manager who ran Galleon, was sentenced to 11 years in prison. Rajat Gupta, the former boss of McKinsey, has also been charged with passing along confidential information to Mr Rajaratnam, and his trial is expected to take place later this year.

“If you are engaged in an insider-trading conspiracy…what distinguishes you from the dozens who have been charged is not that you haven't been caught; it's that you haven't been caught yet”, Janice Fedarcyk of the Federal Bureau of Investigation said after the arrests. American prosecutors are trying to scare hedge funds into good behaviour. More arrests and prison sentences may well get many to listen.