Wednesday, September 27, 2023
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Feds Snare Four in Insider-Trading Plot

(CN) - Four investment banking officers were charged Tuesday for using insider trading to rake in millions at their hedge funds. Two of the men pleaded guilty to the charges the same day, Manhattan prosecutors said, adding that the men went to great lengths to destroy evidence from their illegal actions.

Upon realizing that investigators were monitoring their expert-networking firm, Samir Barai, a former portfolio manager at two different hedge funds, and Donald Longueil, a portfolio manager and research analyst, destroyed records of conversations they had with insiders, according to the federal complaint.

Alleged co-conspirators Jason Pflaum and Noah Freeman pleaded guilty to their role in the scheme and cooperated with authorities to bring down Barai and Longueil.

In a statement Tuesday, U.S. Attorney Preet Bharara called the case "a sad chronicle not only of criminal conduct but also its brazen cover-up."

"It alleges hard-core insider trading in stock after stock - people blatantly trafficking in material, nonpublic information," Bharara said. "And the lengths to which two of these defendants went to cover their tracks sounds like something out of a bad movie."

Authorities believe the four men began inside trading in 2006, often using an expert-networking firm to communicate and pay their sources. For instance, in 2008, Barai's hedge fund bought 300,000 shares from Marvell Technology Group based on accurate inside information provided by Winifred Jiau, who was arrested in December.

The transaction allowed the hedge fund to profit by about $820,000. Longueil's hedge fund in Connecticut profited by $2.6 million using the same information about Marvell.

In November of last year, prosecutors say the co-conspirators grew fearful that authorities would soon discover their scheme.

One day after reading reports that the FBI was investigating the expert networking firm they used, Barai urged Pflaum, a research analyst at his fund, to destroy any possible paper trail.

"Shred as much as u can," Barai wrote Pflaum in a text message. "They need proof that we acted on something."

Besides Marvell, the defendants allegedly traded insider information from NVIDIA Corp., Fairchild Semiconductor International, Advanced Micro Devices, Actel Corp., and Cypress Semiconductor Corp.

Barai and Longueil are both charged with one count of conspiracy to commit securities fraud and wire fraud and one count of obstruction of justice. Barai was also charged with three counts of substantive securities fraud. They face up to 20 years in prison.

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