Four hedge fund managers, including two that once worked for SAC Capital, have been charged by federal prosecutors on insider trading counts.
Two of the men were arrested Tuesday morning by the FBI. Two others have pleaded guilty and are now cooperating, prosecutors said.
Officials said Samir Barai, Jason Pflaum, Noah Freeman and Donald Longueuil are the hedge fund traders charged this day. Freeman and Pflaum pleaded guilty.
Prosecutors said the charges touch upon at least six hedge funds, six publicly traded companies and the suspects made at least $1 million in illegal profits. The SEC said illegal trades could total more than $30 million.
- Read the complaint against Barai.
- Read Noah Freeman's plea agreement.
- Read Jason Pflaum's plea agreement.
U.S. Attorney Preet Bharara -- who has called the problem of insider information "rampant" -- said the charges are "a sad chronicle not only of criminal conduct but also its brazen cover-up. It alleges hard core trafficking in material, non-public information."
Freeman and Longieuil had worked for hedge fund giant SAC for nearly two years when some of the alleged crimes took place. An SAC spokesman said,“We are outraged by the alleged actions of two former employees, which required active circumvention of our compliance policies and are egregious violations of our ethical standards. The government alleges that their improper conduct together began at their prior firms in 2006 and continued after they joined SAC in mid-2008. They were employed at SAC for a short time and were dismissed in January 2010 and June 2010, respectively, due to poor performance. SAC is continuing to cooperate with the government’s investigation.” The four suspects allegedly called contacts at expert networking firms who in turn were allegedly getting improper information from insiders at public companies like Marvell, Fairchild, Nvidia, Actel, AMD and Cypress.
Court papers alleged Barai and Longueuil conspired in illegal trading schemes from at least 2006-2010.
"When you are paying insiders for earnings data before it's announced, that isn't 'research.'. That's cheating," said FBI New York Director Janice Fedarcyk.
Several of the suspects had routine conference calls to swap the illegal insider information, investigators said. Prosecutors said one example is how Pflaum made calls to an employee at Fairchild semiconductor International "for the purpose of obtaining material, nonpublic information."
Officials said upon learning about the insider trading investigation, Barai allegedly asked Longueuil to help cover up the crime by destroying flash drives and hard drives. Wiretaps recordings allegedly show Longueuil boasting that he "... threw the sh** in the back of like random garbage trucks, different garbage trucks ... I can see the feds ... well they can find it but it is all ripped apart."
The pair now face obstruction of justice charges as well.
According to the criminal complaint, Barai had traded hundreds of thousands of shares of Fairchild and Marvell Technologies stock based on insider tips. Barai controlled more than $200 million in assets at his hedge fund, prosecutors said.
Barai and Longueuil - along with their attorneys - declined to comment at federal court. After posting bail, Longueuil tried to avoid the waiting news cameras by covering his head with a red hooded sweatshirt. Investigators said Pflaum has admitted his guilt and is now cooperating against his fellow defendants in the hopes of receiving a reduced prison sentence.
The FBI said it has used court-authorized wiretaps to record the conversations of the suspected rogue traders. Late last year, U.S. Attorney in public statements said insider trading on Wall Street is rampant and had vowed a crackdown.
"We are far from finished," Bharara said at Tuesday's news conference.
The insider trading crackdown on Wall Street has resulted in 46 arrests and 29 guilty pleas.
In December, four Wall Street company insiders and consultants were arrested on charges of insider trading as a fifth man pleaded guilty to securities and wire fraud charges, officials said.
In November, the FBI searched three hedge funds in New York, Boston and Stamford in connection with an ongoing insider trading investigation. Later that month, the FBI arrested a networking executive on conspiracy charges related to insider trading in connection with his employment at the firm.
In 2009, billionaire hedge fund investor Raj Rajaratnam and nearly two dozen others colleagues were arrested in an insider-trading case. Rajaratnam denies any wrongdoing.