The war on insider trading continues with criminal and civil charges being brought against the owner of a research firm tied to the expert network cases, Tai Nguyen. Mr. Nguyen, is the founder of Insight Research, a consulting firm that analyzed publicly traded technology companies for hedge fund managers. On Tuesday Mr. Nguyen surrendered to the FBI. The SEC also filed a civil action, SEC v. Nguyen (S.D.N.Y. Filed June 26, 2012).
Mr. Nguyen resided in Pleasanton, California. From 2000 through 2005 he was employed as a research analyst at three different broker-dealers. From 2006 through 2009 Mr. Nguyen periodically obtained inside information about Abaxis, Inc. according to the SEC. That publicly traded company is based in Union City, California. It manufactures blood analysis systems for the medical profession. The inside information came from a relative at Abaxis who reported directly to the CFO of the company. The relative’s responsibilities included calculating the company’s quarterly revenues.
On at least seven occasions between 2006 and 2009 the relative provided Mr. Nguyen with inside information concerning the financial results of Abaxis before they were disclosed by the company. The information included the quarterly revenues as well as the gross profit margins and earnings per share of Abaxis. In each instances Mr. Nguyen traded, reaped approximately $145,000.
During the same period Mr. Nguyen passed on the earnings information about Abaxis to Sonar Capital. That firm is an investment adviser based in Boston that advised several hedge funds. Mr. Nguyen is alleged to have tipped Sonar at least six times over the three year period. In each instance Sonar traded, reaping profits and avoiding losses totaling over $5.4 million.
Mr. Nguyen also tipped Bari Capital on at least two occasions. The founder of Bari Capital is Samir Barai who pleaded guilty in the expert network cases and was named as a defendant in the parallel SEC enforcement action. U.S. v. Freeman, 22-cr-116 (S.D.N.Y.); SEC v. Longoria, Case No. 06-cv-10885 (S.D.N.Y.). Bari Capital had trading profits of over $1.7 million.
The criminal charges are being filed. The SEC’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b).
Yesterday Adam Smith, a former Galleon Group LLC portfolio manager who was a key cooperating witness against convicted hedge fund mogul Raj Rajaratnam, was sentenced to serve two years probation. In January 2011 he pleaded guilty to criminal charges in connection with insider trading. He was also scheduled to testify against Rajat Gupta. U.S. v. Smith, 11-cr-00079 (S.D.N.Y.).