Insider trading investigations, continued | FT Alphaville

Insider trading investigations, continued

The insider trading investigations continue — and move beyond expert networks. From the FT on Tuesday:

Federal prosecutors have charged three hedge fund portfolio managers and a hedge fund analyst with insider trading.

The charges against two of the portfolio managers include obstruction of justice, federal prosecutors in Manhattan said. US officials unsealed charges on Tuesday morning in New York. …

Among the four charged are Samir Barai, who runs hedge fund Barai Capital and Donald Longueuil, a former employee of SAC Capital Advisors. Mr Barai surrendered at 9am on Tuesday in New York, according to a officials. Mr Longueuil was arrested that morning at his Manhattan home.

Also charged were Noah Freeman, a former employee of SAC, and Jason Pflaum. Freeman and Pflaum are working with the FBI and have both pleaded guilty.

The FBI compaint against Barai and Longeuil is available via the FT — as are the plea agreements with Freeman and Pflaum. (The complaint is a gobsmacking and recommended read.)

The SEC has also filed civil charges against the four. Its complaint concentrates on the connections between the four hedge fund employees and consultants and employees of the expert network Primary Global Research.

It alleges that the traders made approximately $30m in illicit profits or avoided losses from the disclosure of material non-public information from PGR employees or consultants.

We’re now approaching 40 people charged with insider trading in the sweep of Galleon, PGR and other employees, and it’s worth pausing to reflect that these have come about via an incredibly narrow field of investigation: mostly via one expert network’s activity across one sector (tech) with relatively paltry amounts of alleged illicit profits. It’s moving from the periphery to the core, but the scope remains small.

No wonder that hedge funds are seeking belated clarification on their rules of engagement with these firms. It’ll be interesting to see whether the SEC takes this opportunity to lay down speficic guidelines, build some Chinese Walls and dramatically increase transparency — we hope so, but we’re not holding our breaths.

As an indication of the difficulties of these investigations we’ll finish by quoting without comment from the BBM transcripts from Barai contained within the federal complaint:

We also considered quoting from page 29 — but FT Alphaville is a family show and it’s before the watershed.

Related link:
SEC brings further charges against expert network employees – FT Alphaville