NEW YORK: US prosecutors have charged Samir Barai, an Indian-origin former hedge fund manager at Citigroup, with conspiracy to commit securities and wire fraud as part of a wide-ranging investigation into the country’s biggest insider trading case.
39-year-old Barai, also founder of New York-based USD 100 million Barai Capital Management, has surrendered to the FBI.
He has been charged with conspiracy to commit securities and wire fraud for his involvement in insider trading.
Three others charged along with him by prosecutors in New York are Donald Longueuil, who formerly worked as a research analyst, Ason Pflaum, a former research analyst for Barai and Noah Freeman, a portfolio manager at a fund.
Barai and Longueuil, 34, have also been charged with obstruction of justice for their efforts to destroy evidence of their involvement in insider trading after reading media reports about the FBI’s investigation.
The charges are the latest in the US government’s biggest insider trading probe. So far, 13 people have been arrested or charged in the investigation.
Barai is accused of trading on inside information about technology companies after receiving tips from a consultant working for expert network firm Primary Global Research.
Barai Capital was one of the hedge funds raided by US investigators in November. It has since shut down.
Prior to starting his own fund, Barai was a portfolio manager at Citigroup’s USD 2 billion Tribeca Global Management, which was shut in 2008.
Longueuil was arrested at his residence in New York.
Pflaum and Freeman have pleaded guilty in Manhattan federal court to one count each of conspiracy to commit securities fraud and for their roles in the scheme.
Freeman was a managing director at Boston-based Sonar Capital Management before joining SAC Capital in mid-2008.
The US has brought insider-trading charges against more than 30 people since October 2009 as part of the probe.
A trial in the case at the centre of the investigation, against former Galleon Group LLC co-founder Raj Rajaratnam, a Sri Lankan, is scheduled to begin on February 28 in New York.
The complaint alleged hard core insider trading in stock after stock – people blatantly trafficking in material, non-public information.
“And the lengths to which two of these defendants went to cover their tracks sounds like something out of a bad movie,” Manhattan US Attorney Preet Bharara said in a statement.
According to the complaint, Barai, Longueuil, Pflaum and Freeman participated in a conspiracy between 2006 and 2010 to obtain inside information, including detailed financial earnings about numerous public companies.
Although the four worked at different hedge funds, they had regular conference calls during which they shared information with each other.
In May 2008, Winifred Jiau, who was previously arrested in December 2010, told Barai and Freeman over telephone about a company’s quarterly revenues, gross margins and earnings per share.
As a result of Jiau’s information, Barai and Longueuil’s hedge funds purchased shares of the company and ended up making over a million dollars in profit.
They also made efforts to conceal the scheme from regulatory and law enforcement agencies, including by saving any electronic records evidencing their communications with company insiders on external flash drives or external hard drives, rather than on hedge fund servers.
They also used personal e-mail accounts rather than the hedge fund e-mail accounts to communicate about inside information.
Later when Barai and Longueuil read media reports that the FBI and a Manhattan federal grand jury were conducting an investigation into insider trading, the two destroyed digital records and documents reflecting their receipt of inside information from their sources.
Barai had told Pflaum in a November 19, 2010 BlackBerry message to “delete ur bbm chatr,” meaning BlackBerry messages with Barai.
Pflaum answered “Yo. Deleted them” the next morning and said he “didn’t sleep so well last night.”
Barai answered that he “didn’t sleep much either,” and that Pflaum should “shred as much as u can” and delete emails from two other workers at his firm, Barai Capital Management.
“I deleted mine,” Barai is said to have added.
Longueuil destroyed his flash drive plus two external hard drives by ripping them up with two pairs of pliers, according to the complaint.
“(P)ulled the external drives apart,” Longueuil told Freeman, according to the complaint.
“Put (them) into four separate little baggies, and then at 2 am … 2 am on a night, I put this stuff inside my black North Face … jacket … and leave the apartment and I go on like a 20-block walk around the city … and try to find a garbage truck … and threw the (it) in the back of it like random garbage trucks, different garbage trucks … four different garbage trucks.”
Barai could face a maximum penalty of 20 years in prison and a maximum fine of USD 5 million. Pflaum and Freeman face a statutory maximum sentence of 25 years in prison.
The charges against them are part of an ongoing government probe of insider trading by hedge funds that hire consultants or expert networks to provide inside information on companies, like earnings or upcoming products.