April 20, 2024

DealBook: A Tangle of Details Emerge in an Insider Trading Case

Federal District Court in Lower Manhattan.Craig Ruttle/Associated PressFederal District Court in Manhattan.

6:40 p.m. | Updated

The dark side of Wall Street’s expert network industry was on full display in Federal District Court in Manhattan on Friday.

A former executive at Nvidia admitted to leaking information about the semiconductor company’s financial results as part of an insider-trading ring involving an expert network firm — consultants who connect money managers with public company employees.

Sonny Nguyen, 39, told a judge that he participated in an illegal scheme to supply Winifred Jiau, a consultant at the expert network firm Primary Global Research, and another person with secret information about Nvidia’s quarterly earnings in 2007-8. He faces up to five years in prison.

A few hours later, Sam Barai, who ran the hedge fund Barai Capital Management, pleaded guilty to trading on secret corporate information provided to him by Ms. Jiau about stocks including Nvidia. He also pleaded guilty to obstruction of justice, and faces up to 25 years in prison.

Ms. Jiau, who has pleaded not guilty to insider trading crimes, is scheduled to go on trial on June 1. Mr. Nguyen is expected to testify in the case. Mr. Barai has also been cooperating with the government.

Evan Barr, a lawyer for Mr. Barai, declined to comment. A lawyer for Mr. Nguyen did not return a request for comment.

The pipeline of illicit information about Nvidia, moving from an employee at the company to a consultant to a hedge fund manager, is illustrative of the criminal activity that the government has sought to root out at expert network firms.

The government has criminally charged 13 people connected to these firms, including Ms. Jiau, who is accused of knowingly facilitating the passing of inside information. Of the 13 charged, eight have pleaded guilty.

At a news conference earlier this year, Preet S. Bharara, the United States attorney in Manhattan who has led the government’s investigation, lambasted the expert network business.

“Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual,” said Mr. Bharara. “We are talking about something verging on a corrupt business model.”

The expert network business developed over the last decade alongside the explosive growth of hedge funds, which have used the firms to supplement traditional Wall Street research and gain an investment edge. The insider trading cases have hurt expert network firms as a number of prominent hedge fund managers have stopped using them.

Primary Global, the firm that employed Ms. Jiau, has been hit hardest by the government’s investigation. At least seven people connected to Primary Global, a California firm started by two former Intel executives, have been charged with insider trading-related crimes.

Mr. Barai, a 39-year-old former Citigroup executive, was a client of Primary Global. In February the government charged him with swapping illegal stock tips sourced by Ms. Jiau with two portfolio managers at SAC Capital, the hedge fund run by the billionaire investor Steven A. Cohen.

After reading news reports about the government’s investigation last November, Mr. Barai instructed one of his colleagues to destroy his BlackBerry Messenger communications and erase incriminating data from his laptop computer.

The two SAC managers, Noah Freeman and Donald Longueuil, have already pleaded guilty. A fourth person connected to the case, Jason Pflaum, an employee of Mr. Barai’s, also pleaded guilty.

The inquiry has reached to the top of SAC, one of the world’s most influential hedge funds and a big user of expert network firms. Federal prosecutors are examining trades in an account run by Mr. Cohen that were suggested by Mr. Freeman and Mr. Longueuil.

Neither SAC nor Mr. Cohen has been accused of any criminal wrongdoing and the firm is cooperating with the government’s investigation.

Article source: http://feeds.nytimes.com/click.phdo?i=6b3d7ae877dd4a6835253ba2bd7a10d5

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