Three Hedge Funds Got Data From Consultant, U.S. Says

James Fleishman Of Primary Global Research
James Fleishman, a sales manager at Primary Global, where the three men worked as consultants, also was arrested at the time. If convicted, all four face as long as 20 years in prison. Photographer: Tony Avelar/Bloomberg

A former Primary Global Research LLC expert-networking consultant was charged by U.S. prosecutors in Manhattan with selling inside information to portfolio managers at three unidentified hedge funds.

Winifred Jiau, arrested in Fremont, California, as part of a national probe of insider trading, was accused of selling data on Nvidia Corp. and Marvell Technology Group Ltd., makers of computer components, through Primary Global, according to a filing yesterday in Manhattan federal court. The hedge funds paid her $200,000 through the firm, prosecutors said.

Jiau, 43, is the seventh person connected to Primary Global to be charged in a U.S. insider trading investigation that has ensnared company employees and consultants. The Jiau complaint shows prosecutors are gathering evidence of alleged insider trading against hedge fund employees.

The probe became public last year with the arrest of Galleon Group LLC hedge fund co-founder Raj Rajaratnam. The FBI recorded thousands of conversations during their investigation of the firm, lawyers said at an October hearing. Rajaratnam, who denies the charges, is scheduled to go on trial in Manhattan next year.

Jiau is charged with one count each of conspiracy to commit securities fraud and securities fraud. She appeared yesterday in San Francisco federal court and was ordered held in custody by U.S. Magistrate Judge Nandor Vadas, who set a hearing for Jan. 12 on whether to transfer her to New York. She is scheduled to appear today to seek release on bail.

‘Strong’ Evidence

The evidence against Jiau is “strong,” Assistant U.S. Attorney Wilson Leung told the judge, adding that there is a “cooperating witness and audio recordings.” When asked by Vadas if she understood the charges, Jiau said “I not have a chance to know until now.” Barry Portman, her assigned public defender, said the complaint is a “lengthy document.” The first count carries a maximum sentence of 20 years in prison.

Prosecutors claim Jiau began getting paid for insider information in September 2006. In May 2008, Jiau separately gave two hedge fund portfolio managers, one of whom worked for two hedge funds, “on point and accurate” data about the quarterly financial results at Marvell before it was released to the public, prosecutors said. One of the funds netted more than $820,000 in profits based on that inside information, the FBI said.

Jiau also gave quarterly financial data in August 2008 about Marvell to the same two managers, referred to as unidentified co-conspirators CC-1 and CC-2 in the complaint.

Inside Data

CC-1 founded a New York entity referred to as Hedge Fund A and CC-2 worked at two separate hedge funds, according to the complaint. A cooperating witness who pleaded guilty, CW-1, began working as a research analyst at Hedge Fund A in March 2008, the FBI said in court papers.

CC-1 told the cooperating witness to get inside data from various co-conspirators, including Jiau, the FBI said. She gave inside information to CC-1 and CC-2, and the cooperating witness listened to their conversations about Marvell, the FBI said.

CC-1 also recorded conversations with Jiau, and the complaint quoted Jiau in conversations about Marvell’s second-quarter earnings that the company announced on Aug. 28, 2008.

When CC-2 asked if she had data yet on the next quarter, she said: “As soon as I get it, I give you guys a buzz,” according to court papers.

CW-1 “understood that Jiau obtained the information about Marvell and Nvidia from a source who was not authorized to disseminate” it, according to the complaint.

‘Expert Consultant’

Marilyn Gerber, a spokeswoman for Primary Global, said in an e-mailed statement that Jiau served as an “expert consultant” with the company from September 2006 to December 2008, declining further comment.

Jiau was the fifth Primary Global consultant arrested in an insider-trading crackdown that also has led to criminal charges against two other employees of the networking firm. One of the consultants, former Dell Inc. supply chain manager Daniel DeVore, pleaded guilty Dec. 10.

On Dec. 16, Federal Bureau of Investigation agents arrested three others, technology company workers who allegedly sold secrets about Apple Inc., Dell and Advanced Micro Devices Inc. The men, who worked at AMD, Flextronics International Ltd. and Taiwan Semiconductor Manufacturing Co., were arrested on securities fraud and conspiracy charges for a scheme that Manhattan U.S. Attorney Preet Bharara said operated from 2008 to early 2010.

James Fleishman, a sales manager at Primary Global, also was arrested the same day as the three men. If convicted, all four face as long as 20 years in prison.

Leaked Information

DeVore pleaded guilty to conspiracy to commit securities fraud and wire fraud. He said he worked as a paid consultant for Primary Global and, through the firm, accepted money from hedge funds for inside information. At his plea hearing, he said he leaked inside information to clients of Primary Global and New York-based consulting firm Guidepoint Global LLC, according to a transcript.

James Fingeroth, a spokesman for Guidepoint Global in New York, declined to comment yesterday.

The expert-network arm of the Galleon probe was revealed last month with the execution of search warrants at hedge funds on Nov. 22, and the Nov. 24 arrest of Don Ching Trang Chu, another Primary Global employee.

FBI Agents

FBI agents from New York and Boston executed warrants at the offices of Level Global Investors LP and Diamondback Capital Management LLC, hedge funds founded by alumni of SAC Capital Advisors. Agents that day also executed a search warrant at the offices of Loch Capital Management. None of the firms or their employees has been accused of any wrongdoing.

Expert-networking companies such as Mountain View, California-based Primary Global match investors with specialists who provide insight into specific markets. Prosecutors in the case have described in criminal complaints the links among Primary Global, the technology experts it employed and unidentified hedge funds willing to pay for inside information.

Santa Clara, California-based Marvell, which makes chips for the BlackBerry phone, declined to comment on Jiau’s arrest. Bob Sherbin, a spokesman for Nvidia, also based in Santa Clara, said Jiau was a contractor who left the company a year ago, declining further comment.

Lawsuit

A Winifred Jiau filed a sexual-harassment lawsuit against her former employer, San Francisco-based Adteractive Inc., in 2007. The complaint said she has an undergraduate degree from National Taiwan University and a Master’s degree in statistics from Stanford University. The plaintiff in the lawsuit matches the age and northern California residence of the Winifred Jiau charged by prosecutors.

Jiau founded a company that got funding from Intel Corp., according to the lawsuit. In the suit, filed in California Superior Court in San Francisco, the plaintiff claimed she worked as a senior statistician for Adteractive from April to July of 2006, when she was fired after refusing the alleged sexual advances of a supervisor.

According to the civil suit, the plaintiff had “over ten years of work experience building financial and economic models” and she “started her own company that was funded by Intel.”

The case was dismissed on Dec. 29, 2008, after the filing of a notice of a confidential settlement, according to court records. An Adteractive attorney, Aryn Pedowitz, declined to immediately comment on the case.

Theo Emison III, a lawyer who filed the civil suit, said he was unable to say whether his former client is the woman charged yesterday.

Wiretap Recordings

Recorded and wiretapped conversations have been at the center of the Galleon probe and its various branches. Investigators said they made consensual and surreptitious recordings of an unidentified expert-networking firm’s phones, the land lines of an unidentified hedge fund and the mobile phones of two of the consultants arrested Dec. 16 -- Mark Anthony Longoria, who worked at chipmaker AMD, and Walter Shimoon, formerly of Flextronics, a Singapore-based maker of electronic components.

At least two hedge funds are described in the complaint against the men. Neither is identified by name.

The U.S. also made consensual recordings using five cooperating witnesses, had a tap on mobile phones used by Shimoon and Longoria, and recorded conversations at Primary Global in November 2009, a month after Rajaratnam’s arrest, according to court papers.

One Witness

At least five people have been working with the government in the insider-trading probe, according to court filings. Only one witness was identified by name: Richard Choo-Beng Lee, a former partner at San Jose, California-based hedge fund Spherix Capital LLC. He began cooperating with the U.S. in April 2009, according to the records, providing information to Bharara’s office in the government’s case against Galleon. He pleaded guilty in November 2009.

His partner at Spherix, Ali Far, who also worked as an analyst and portfolio manager at Galleon, pleaded guilty and is aiding the U.S. in the Galleon probe.

The U.S. said Chu established a relationship with Lee and that Spherix paid Chu’s firm, Primary Global, for tips concerning Atheros Communications Inc., Broadcom Corp. and Sierra Wireless Inc., according to the government’s complaint.

Luggage Packed

At yesterday’s court hearing in San Francisco, Jiau's defense attorney Barry Portman told the judge that his client is a U.S. citizen and has known about the insider-trading investigation since mid-December. She didn’t attempt to flee, the lawyer said in his argument that she be released.

Leung, the assistant U.S. attorney, countered that Jiau is a “flight risk,” saying that when FBI agents went to her house, they found her car running and luggage packed.

The prosecutor told the judge that Jiau claimed she had just returned from a trip to Asia, though her trip, to Beijing, took place in October.

The case is U.S. v. Jiau, 10-Mag.-2900, U.S. District Court for the Southern District of New York (Manhattan).

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