U.S. authorities have charged four hedge fund employees with insider trading, U.S. Attorney Preet Bharara of the Southern District of New York said Tuesday, noting that two had already pleaded guilty.
Hedge fund managers Samir Barai, Donald Longeuil and Noah Freeman, in addition to technology analyst Jason Pflaum, acquired and shared inside information that brought in millions of dollars in illicit profits, Bharara said at a news conference in Manhattan. The hedge fund employees paid off networks of individuals from at least six publicly traded companies to obtain the illegal inside information, the U.S. Attorney said.
Barai, who operates Barai Capital Management, and Longeuil also face obstruction of justice charges for allegedly destroying evidence following the November publication of a Wall Street Journal article on a vast U.S. insider trading investigation. The criminal complaint noted that Longeuil allegedly ripped up two external hard drives and used two pairs of pliers to tear apart a flash drive before tossing the pieces that contained information related to the insider trading in garbage trucks around New York.
Freeman and Pflaum have pleaded guilty, although it was not immediately clear if that meant they are cooperating with prosecutors. On Tuesday morning, Longeuil was arrested at his New York home and Barai surrendered to authorities. If convicted, the hedge fund employees could spend decades in prison.
“The complaint unsealed today is a sad chronicle, not only of criminal conduct, but also its brazen cover-up,” Bharara said. “It is precisely the type of pervasive and pernicious activity that causes average people to think that they would be better off pulling their money out of Wall Street and stuffing it in a mattress.”
The investigation is ongoing, said Janice Fedarcyk, Assistant Director-in-Charge of the New York office of the FBI, who joined Bharara and Robert Khuzami, Director of the Securities and Exchange Commission’s Division of Enforcement, at the news conference. Assistant U.S. Attorneys Avi Weitzman, David Leibowitz and Special Assistant U.S. Attorney Andrew Z. Michaelson are handling the case.
Bharara has said investigating and prosecuting illegal insider trading is a top priority of his office, which is about a mile from Wall Street. Officials have charged 46 individuals in the Southern District of New York with insider trading over the last 18 months, he said. Of those, 29 have pleaded guilty.
In 2009, the U.S. Attorney’s office brought insider-trading charges against billionaire Galleon Group LLC founder Raj Rajaratnam. Prosecutors allege that he earned more than $33 million in illicit profits from the insider trading. His trial is scheduled to begin Feb. 28.
The federal government has made wiretaps and body wires important tools in its insider trading investigations. The probes of Rajaratnam and the four hedge fund employees included the use of one or both of the methods for gathering information.
On Tuesday, Bharara defended the government’s use of the techniques. He said the case against the four hedge fund employees is “Exhibit A” for why the investigative tools are important in white-collar criminal investigations.