The expert network insider trading investigation continues to expand in a fashion similar to its predecessor, the Galleon insider trading cases. Four additional individuals, each at a different hedge funds were named in criminal charges Tuesday. Two pleaded guilty. To date twelve individuals have been charged and four have pleaded guilty. Nevertheless, the U.S. Attorney’s Office for Manhattan and the FBI made it clear in a press release that the investigation is far from over and more charges will be brought. The most recent court papers also make it clear that the inquiry is broader than just expert networks.
Yesterday Samir Baral, a manager at what is identified as Hedge Fund B in the criminal case papers, and Donald Longueuil, who worked at Hedge Fund C, were each charged with conspiracy to commit securities fraud and wire fraud and obstruction of justice. Mr. Baral was also charged with three counts of securities fraud. In addition, Jason Pflaum and Noah Freeman, each of whom were employed at other funds, pleaded guilty to conspiracy to commit securities fraud and securities fraud.
According to the court papers, the four defendants engaged in a conspiracy to insider trade from 2006 through 2008. The group is alleged to have obtained material non-public information about Marvell Technology Group, Ltd, NVUDIA Corporation, Fairchild Semiconductor International, Inc., Advanced Micro Devices, Inc., Actel Corporation and Cypress Semiconductor Corporation. The information was obtained from multiple sources which include employees who worked at times for those and other public companies and from an “expert networking” firm. Messrs. Barai, Longueuil and Freeman also regularly shared inside information according to the papers.
Winifred Jiau, who was previously charged in connection with this investigation (here), is alleged to have been the source of information about Marvel. For example, in May 2008 she furnished inside information about the Marvel’s quarterly revenues, gross margins, and earnings prior to their announcement to Messrs. Freeman and Longueuil in separate communications. Each traded, reaping profits. Hedge Fund B purchased over 300,000 shares while Hedge Fund C acquired over 800,500. Following the earnings announcement the share price increased by about 23% giving Fund B a profit of $ 820,000 and Fund C $1.08 million.
All four defendants took steps to conceal their activities. Messrs. Barai and Longueuil also evaluated what proof the government might have against them and destroyed evidence following the public disclosure of the investigation, according to the charging papers. In one series of e-mails the two men concluded that the government did not have enough evidence to charge them and that they could rely on the “mosaic theory.” Later Mr. Longueuil recounted to Mr. Freeman how he had destroyed certain evidence of the trades which had been on a zip drive. At the time of the conversation Mr. Freeman was a cooperating witness.
Previously, the SEC filed an action which overlapped, but was not identical to, the prior criminal charges arising out of the expert network investigation (here). Yesterday the Commission amended that complaint to add as defendants Messrs. Barai, Pelaum, Freeman and Longueuil.