Donald Longueuil, a former junior portfolio manager at SAC Capital Advisors LP, pleaded guilty to conspiracy to commit securities and wire fraud and to securities fraud as the U.S. cracks down on insider trading at hedge funds.
Longueuil, 35, entered the plea today before U.S. District Judge Jed Rakoff in Manhattan. Rakoff said that there was a plea agreement between the U.S. and the defendant and that Longueuil could face a prison sentence of 46 months to 57 months.
“I am sorry for my actions and the pain that I have caused my family and loved ones,” Longueuil told Rakoff, his voice choking with emotion. “I have learned a lot from my experience and I look forward to applying these lessons as I move forward with my life.”
Rakoff set sentencing for July 29. Longueuil remains free on bond. Longueil and his lawyer, Craig Carpenito, declined comment after court.
Charges were first filed against Longueuil in February by U.S. Attorney Preet Bharara in a case that also included another former SAC Capital portfolio manager, Noah Freeman, and Samir Barai, founder of Barai Capital Management, and Jason Pflaum, who worked for Barai. Freeman and Pflaum have pleaded guilty and are cooperating with the U.S. Barai hasn’t entered a plea.
SAC Capital, based in Stamford, Connecticut, has said it cooperated with the U.S. investigation.
Longueuil told Rakoff that from 2004 to 2010, he was employed at two separate hedge funds as a managing director and portfolio manager, researching companies in the technology industry. He said that from 2006 to 2010, he conspired to obtain inside information to benefit the funds.
“In May 2008, I obtained material, non-public information from a co-conspirator relating to the upcoming May earnings call for Marvell Technology Group Ltd., a publicly traded company listed on Nasdaq,” Longueuil said, reading from a prepared statement. “I obtained revenues and gross margins for the quarter before that information was publicly announced.”
“Who was that?” Rakoff asked. Longueuil didn’t answer. When Carpenito stood up, Rakoff shouted at him to sit down.
“Who was that?” the judge again asked Longueuil.
“Sam Barai,” Longueuil said.
Longueuil said he caused a hedge fund he was working for to buy about 400,000 shares of Marvell on May 28, 2008, based on the tip.
‘I Acted Willfully’
“In doing so, I acted willfully and with the intent to cause that fund to profit on the trade,” he said.
The U.S. has said in court papers that Barai has had “proffer sessions” about the probe of expert networking firms and hedge funds. Proffer sessions are pre-indictment negotiations with prosecutors in which a defendant, accompanied by a lawyer, agrees to answer questions truthfully and prosecutors promise not to introduce the remarks as evidence. The government may only use such statements on cross-examination to undercut testimony if a defendant takes the stand at trial.
Evan Barr, a lawyer for Barai, didn’t immediately return a voice-mail message today seeking comment.
Prosecutors said that after Longueuil read a newspaper article on Nov. 19 about a federal probe of the insider-trading scheme, he went to his office at about 2 a.m. and took pliers to two external drives on his computer, destroying them. He walked 20 blocks, dumping the parts in four separate garbage trucks, prosecutors said.
‘Chopped Up Everything’
“Chopped it up, chopped up everything,” Longueuil wrote in a text to Freeman, according to the complaint filed by the U.S. in February. Prosecutors agreed to drop the obstruction charge stemming from those actions.
“I disposed of a flash drive and hard drives relevant to the conspiracy,” Longueuil told the court.
He agreed to forfeit more $1.25 million, which Rakoff said were profits of the scheme.
Longueuil and Winifred Jiau, a former consultant for Primary Global Research LLC, were charged with conspiracy in an indictment in March. Prosecutors said Jiau passed inside information to an unnamed hedge-fund portfolio manager and to Freeman, a Boston hedge-fund manager.
Primary Global Research, based in Mountain View, California, is an expert networking firm, linking investors with industry experts who work for public companies.
Longueuil, who worked in SAC Capital’s CR Intrinsic unit in New York from July 2008 to July 2010, was accused of giving information to Freeman, who, in exchange, passed material non-public information to Longueuil that he had obtained from sources, including Jiau, according to prosecutors.
Jonathan Gasthalter, a spokesman for SAC Capital, said Freeman and Longueuil were both dismissed from SAC in 2010 because of poor performance.
Jiau, who has pleaded not guilty to the charges, is awaiting trial before Rakoff on June 1. Her lawyers have asked the court to suppress e-mails and instant messages as well as recordings made by Barai and Pflaum of Jiau allegedly passing inside information to him. Jiau has also sought to dismiss the charges. Both requests are still pending.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).