U.S. prosecutors accuse four in insider trading probe of hedge funds
Intensifying a crackdown on alleged insider trading by hedge funds, federal prosecutors have brought criminal charges against four more people, two of whom have already pleaded guilty.
The actions in federal court in New York are the latest in a widening investigation by a special hedge fund task force created by the Securities and Exchange Commission and coordinated by the Obama administration that is designed to stem financial crimes.
Two of those charged had connections to Primary Global Research of Mountain View, Calif., a so-called expert network whose clients included a number of hedge funds. The government previously charged several people who worked or consulted for Primary Global.
Arrested Tuesday were Samir Barai, a former portfolio manager at two hedge fund firms including his own, and Donald Longueuil, a former manager at hedge fund operator SAC Capital Advisors.
In addition, prosecutors said Jason Pflaum, a former research analyst at Barai’s firm, and Noah Freeman, who worked at SAC Capital, had pleaded guilty to one count each of conspiracy to commit securities fraud.
The new allegations and guilty pleas, U.S. Atty. Preet Bharara in Manhattan said, are “a sad chronicle not only of criminal conduct but also its brazen coverup. And the lengths to which two of these defendants went to cover their tracks sounds like something out of a bad movie.”
Twelve people have been charged by Bharara’s office on suspicion of illegally sharing non-public information about companies to obtain an unfair trading advantage. Four have pleaded guilty, Bharara said, “but we are far from finished.”
Barai, 39, and Longueuil, 34, both of New York, were each charged with one count of conspiracy to commit securities fraud and wire fraud and one count of obstruction of justice. Barai also was charged with three counts of substantive securities fraud. Barai and Longueuil appeared briefly in court Tuesday but were expected to enter pleas later.
Authorities said all four men conspired from 2006 to 2010 to obtain inside information, including detailed earnings data, about numerous public companies. They sometimes paid their sources for confidential material, authorities said, and often held regular conference calls to share secret information with one another.
Prosecutors did not name the hedge funds involved. They said one fund made more than $820,000 in an illegal deal, and another fund reaped about $1.1 million when a company’s stock price climbed 23%.
Janice K. Fedarcyk, the assistant director in charge at the FBI’s New York field office, said the defendants went to great lengths to destroy evidence. “For all their presumed sophistication,” she said, “the defendants lacked a mobster’s instinct for conversational discretion.”
For instance, she said, after reading media reports in November about the federal insider trading probe, they sent around a whirl of e-mail messages.
“Shred as much as you can,” Barai allegedly wrote to Pflaum. “Put all ur data files onto an encrypted drive.... Delete all emails.”
Another time, Barai allegedly fired off a string of messages from his BlackBerry:
“So what if we talked to anyone.”
“They need proof that we acted on something.”
“And it’s hard to have that.”
