How concerned is Wall Street about the ongoing insider-trading crackdown?

Judging from the attendance last night for an event at the Harvard Club in midtown Manhattan, insider trading has become a major obsession of hedge funds and investment banks as several hundred people -- many of them Wall Street types -- attended a discussion with the nation’s top law enforcement official titled “A conversation with US Attorney Preet Bharara.”

The event was moderated by Harvard Business School professor Robert Kaplan, and spotted in the large crowd of Wall Street executives, many of them Harvard alumni, was one of  Wall Street’s most prominent traders, hedge fund manager John Paulson, according to a person in attendance.

Paulson gained fame for his massive bet against subprime debt during the financial crisis. A spokesman didn’t return calls and emails for comment, but people who saw Paulson at the event say he listened intently to Bharara’s speech and afterwards said hello to Kaplan before leaving.

Bharara, the U.S. Attorney for the southern district of New York, has been at the forefront of the current government crackdown on insider trading, which ranks as one of the largest efforts of its kind, snaring dozens of traders, including one of the market’s largest, Raj Rajaratnam, the former head of the giant hedge fund Galleon Group.

Rajaratnam is serving an 11-year sentence in a federal prison for securities fraud. He is appealing his conviction.

He might not be alone among major players implicated in the scandal. FOX Business has learned that federal law enforcement sources say more arrests are likely, including possibly a target of the size of Rajaratnam that could emerge sometime in the fall of this year. These sources also say that a financial journalist is also under scrutiny in the government’s probe.

The FOX Business Network has also learned that major Wall Street firms are bracing for a major white-collar crime crackdown by the Justice Department known as the “October Surprise,” an effort to bolster President Obama’s re-election chances this fall.

Last night’s event was billed as a chance to hear Bharara explain “the biggest challenges facing business leaders in addressing ethic and compliance.”

Bharara’s record of conviction has been impressive; of the 56 people charged in the crackdown, his office has notched 53 convictions. That said, he has received some criticism for grandstanding the office’s achievements through relentless media hype (in one example, he falsely took credit in a Time magazine profile for personally recording a conversation between two targets of the insider trading inquiry) and failing to give proper credit to other agencies such as the FBI and the Securities and Exchange Commission in the investigation of Wall Street fraud.  

During the presentation, he said “we’re not about notching victories in our belt…we believe in what we are doing.” He added that while the insider-trading probe has garnered much of the media’s attention in recent years, his office has spent considerable resources cracking down on “gang violence and crime families…we have an important, effective public corruption office” and he said that the Southern District’s top priority is “to protect the homeland,” meaning terrorism.

But he also gave an indication why his office has spent much of its time on white-collar crimes, including insider trading. “I cannot believe someone who has $1 billion but wants to make $300,000 more -- and they are willing to put their families in jeopardy for it,” Bharara said. “People make mistakes, but if you cook the books once, then you’ll keep doing it quarter after quarter.”

And, he added, “prosecutors don’t like that.”

Charles Gasparino joined FOX Business Network (FBN) in February 2010 as Senior Correspondent.