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Four Hedge Fund Officials Charged With Insider Trading

New York Stock Exchange (file photo)

New York Stock Exchange (file photo)

Federal prosecutors in Manhattan, flanked by FBI and Securities Exchange Commission officials, announced criminal insider trading charges Tuesday against four former hedge fund managers and analysts. U.S. Attorney Preet Bharara additionally charged two with attempting to cover up their alleged crimes, quoting from electronic messages advising others to "shred as much as you can."

Manhattan U.S. Attorney Preet Bharara announced insider trading charges against Samir Barai, a former portfolio manager at two hedge funds, and Donald Longueuil, a former director and portfolio manager at two other funds. Jason Pflaum, once a research analyst for Barai, and Noah Freeman, also a former analyst and portfolio manager, are both cooperating witnesses for the government who have already pled guilty to insider trading offenses.

Bharara alleged that the four illegally bought and shared information about at least six different publicly-traded companies, and used it to make trades that brought them millions of dollars in illegal profits.

"In stock after stock after stock, people boldly trafficking in still secret revenue numbers, gross margins, earnings per share and other clearly material non-public information, so that they could cheat their way to more and more profit. Given the scope of the allegations today, we are not talking simply about the occasional corrupt individual, we are talking about something verging on a corrupt business model, for the defendants seem to have taken the concept of social networking and turned it into a criminal enterprise," Bharara said.

Barai and Longueuil were also charged with obstruction of justice for allegedly attempting to destroy evidence following media reports in November, 2010 about the insider-trading investigation. Bharara said the cover-up was exposed through the use of wiretaps and body wires on the cooperating witnesses.

''Samir Barai and Donald Longueuil took dramatic steps to delete, shred, encrypt, destroy, chop and rip apart - those are their phrases - evidence of the inside information they bought and traded on,'' he said.

Saying it was like a "bad movie", Bharara quoted from a phone conversation in which Longueuil described using pliers to rip apart a flash drive and two external drives, disposing of the pieces in the middle of the night by flinging them into four separate garbage trucks. Bharara said their efforts to destroy evidence showed the two men were aware they had been engaged in illegal activity.

Longueuil and Freeman both worked for SAC Capital Advisor at one point, and Barai and Pflaum for Barai’s firm, Barai Capital Protection. Attorneys for the four were not available immediately for comment.

In the last 18 months, the U.S. Attorney said, federal prosecutors and the Federal Bureau of Investigation have filed criminal charges against 46 defendants accused of insider trading offenses. 29 have pleaded guilty thus far, and many are cooperating witnesses, he said. He said the investigation is ongoing.