In the latest charges to be brought against Wall Street financiers, Federal authorities depict insider trading in dramatic detail.
Two hedge fund managers -- Samir Barai and Donald Longueuil -- were arrested Tuesday morning on charges of insider trading, Bloomberg reports. Two others -- portfolio manager Noah Freeman and analyst Jason Pflaum -- pleaded guilty. The charges are the latest example of a Federal crackdown on insider trading that the Wall Street Journal detailed in November.
In a pair of documents, the Securities and Exchange Commission and the Federal Bureau of Investigation describe an illegal exchange of information, which allegedly allowed hedge funds to reap $30 million in profits. According to the Federal complaints, employees at publicly traded technology companies sold secret information about those companies to workers at hedge funds, which then used that information to make big trades in the companies' stock.
The information was enormously profitable for the firms that received it, according to the court documents. Many of the allegations involve Winifred Jiau, who, the documents say, was employed by various technology companies and, at the same time, by Primary Global Research LLC, as a "private expert." PGR would allegedly receive information from Jiau and then pass it on to clients, including Freeman and Barai.
In May 2008, for instance, Jiau allegedly gave Freeman and Barai early information about the earnings of Marvell Technology Group. According to the SEC, Barai's hedge fund subsequently reversed its short position on Marvell's stock, and reaped close to $1 million in profits and avoided losses.
In another case, Freeman earned about $9.7 million for his hedge fund, after learning secret information, the SEC says.
The FBI documents add more color to the accusations. In November last year, after he read about the probe into insider trading, Barai allegedly wrote to Pflaum from his BlackBerry:
- This scope is said to focus on the use of so-called expert network firms
- Concern for years that some experts may be passing out confi [meaning, confidential] info about to go public cos [meaning, companies] to traders....
- [The Firm] was only one named!!!!
The next morning he said, according to the FBI:
- Didn't sleep much either.
- I dunno
- I think we ok tho
- I think U just go into office
- Shred as much as u can
He also said, according to the FBI:
- Let's not worry....
- No evidence we got exact info
- So it doesn't matter....
- Forget the past
- No proof
- So ur fine
During a conversation between Freeman and Longueuil, which they recorded, they describe how to destroy electronic evidence, the FBI says. From the document:
Freeman then remarked, "I don't see how you get rid of this sh*t," to which LONGUEUIL explained, "Oh, it's easy. You take two pairs of pliers, and then you rip it open ... and then, it's just a piece of NAND. ... So I just f*cking ripped it apart right there. ... I had two external drives that had like wafer numbers on 'em. F*ckin' pulled the external drives apart. Destroyed the platter. ... Put 'em into four separate little baggies, and then at 2a.m. ... 2a.m. on a Friday night, I put this stuff inside my black North Face [u/i] jacket, ... and leave the apartment and I go on like a twenty block walk around the city ... and try to find a, a garbage truck ... and threw the sh*t in the back of like random garbage trucks, different garbage trucks."
Longueuil and Freeman have been accused of insider trading while they were employees of SAC Capital Advisors, the $12 billion hedge fund run by Steven A. Cohen. The company released a statement saying it is "outraged by the alleged actions of two former employees, which required active circumvention of our compliance policies and are egregious violations of our ethical standards."
Cohen, who is worth more than $6 billion, and who owns artist Damien Hirst's embalmed tiger shark, "The Physical Impossibility of Death in the Mind of Someone Living," has been sued repeatedly by his ex-wife, Patricia Cohen. In the latest version of the suit, she alleges that Cohen himself participated in insider trading. From the suit:
Such privileged information was provided to Steven as part of his relationship with Mr. Newberg and as part of an effort to "take care of one another." They sometimes referred to their group of Wharton friends as "the Wharton mafia."
READ the complaints below, from the SEC and the FBI: