Ex-Primary Global Research LLC consultant Winifred Jiau gave secret information from insiders at technology companies she called “cooks” to hedge fund managers for a fee, prosecutors told a federal jury in New York.
In opening statements today at Jiau’s criminal trial, Assistant U.S. Attorney David Leibowitz described a “sophisticated” scheme in which he said insiders at technology companies were paid by fund managers for illegal tips. He said her information was precise “to the decimal point.”
Leibowitz said Jiau spoke in code, demanding payments for the information, which she called “sugar,” and describing her sources as “cooks” and referring to tips as “recipes.”
“At the heart of that scheme, playing a critical role, was the defendant,” Leibowitz told jurors. “The defendant was the insider who was worth every penny they paid her, and she received over $200,000 they paid her for that information.”
Jiau, 43, of Fremont, California, is charged with securities fraud as well as conspiracy to commit wire and securities fraud for allegedly passing inside tips about Nvidia Corp. and Marvell Technology Group Ltd.
The charges are connected to the arrests of eight employees or consultants at Primary Global Research, a Mountain View, California-based firm that links investors with industry experts at public companies. She is the first expert networker to go on trial for insider-trading charges and, if convicted, may face as long as 25 years in prison.
Barai, Freeman, Pflaum
Jiau passed information to Samir Barai, founder of New York-based Barai Capital Management LP, and Noah Freeman, who was a portfolio manager at SAC Capital Advisors LLC in Boston, Leibowitz said. Prosecutors said members of the conspiracy would testify, including Freeman and Barai’s assistant, Jason Pflaum, both of whom have pleaded guilty.
Leibowitz told jurors they would hear recordings of calls between Jiau and a hedge-fund manager in which she passed illegal tips. He said they would also see copies of instant electronic messages that he called “the crime being committed in real time, in the defendant’s own words.”
Joanna Hendon, Jiau’s lawyer, told jurors that while her client passed nonpublic information, it wasn’t “material,” or something a reasonable investor would consider important in trading or to have a bearing upon a stock price.
“We’re going to prove to you beyond a reasonable doubt that none of that information she provided was material, and certainly there was no crime,” Hendon said.
Hendon said her client, a naturalized U.S. citizen originally from Taiwan, had a golden retriever waiting at home.
“Put an end to this misguided prosecution,” Hendon said. “Send Ms. Jiau back to California, and to her dog.”
Jiau is one of 13 people charged since November in the expert-networking probe by federal prosecutors in the office of U.S. Attorney Preet Bharara in Manhattan. That investigation is part of a larger probe of illegal stock-tipping. Eight have pleaded guilty to federal charges.
Hendon today said that her client was ensnared in what she called a “crackdown” on hedge funds in late 2010. She said Jiau was only prosecuted because Freeman and Pflaum decided to implicate her client to save themselves.
“The intensity of this investigation, the force of that was felt throughout the industry,” she said. “It was terrifying to these hedge fund managers.”
Jiau’s case is one of several overlapping insider-trading rings stemming from the probe of New York-based hedge fund Galleon Group LLC. Its co-founder, Raj Rajaratnam, was convicted of directing the largest hedge fund insider-trading ring and faces almost 20 years in prison. His former deputy, Zvi Goffer, is on trial in the same Manhattan federal courthouse where Jiau is being tried.
When Barai pleaded guilty May 27, he said he conspired with Freeman and Donald Longueuil to obtain material nonpublic information. Both Freeman and Longueuil worked as portfolio managers at Stamford, Connecticut-based SAC Capital Advisors, the hedge-fund firm run by Steven Cohen.
Barai said he participated in calls with Jiau in 2008 in which she provided tips to him about Marvell, a Santa Clara, California-based maker of chips for personal computers and mobile phones.
Barai is also cooperating with the U.S., prosecutors said. If he provides “substantial assistance,” to their case, prosecutors said they will submit a letter to his sentencing judge seeking a reduced sentence because of his cooperation. He isn’t expected to testify for the U.S., prosecutors said.
Nvidia’s Quarterly Earnings
Sonny Nguyen, a former analyst with Nvidia, which makes graphics chips, also pleaded guilty in federal court in New York on May 27. He, too, implicated Jiau in a scheme to pass company tips, saying he passed tips to her about Santa Clara-based Nvidia’s quarterly earnings before they were publicly announced. He said he conspired with Jiau and a Marvell employee he identified as Stanley Ng to pass and receive tips from 2007 to 2008.
Prosecutors today said Nguyen, who has pleaded guilty and is cooperating, will testify at Jiau’s trial.
Michael Brown, a special agent with the Federal Bureau of Investigation, testified he conducted searches of Barai’s office and hard drives and recovered e-mails and instant electronic messages in which Jiau discussed continuing to provide Barai information at his new fund.
In one June 3, 2008, instant e-mail chat, Jiau wrote, “Cooks are on strike now,” adding later in the same conversation, “so drop some of your extra sugar to me.”
Barai replied, “yep.”
‘Not My Boyfriends’
Jiau answered, “cooks don’t talk to me without sugar. they are not my boyfriends.”
Barai wrote that he’d gone on a “few dates,” adding that he hadn’t found them “boring.”
“anyhow, I will know something when I got the sugar,” Jiau said. “before that, I don’t know anything.”
At a hearing held outside the jury’s presence today, Hendon complained she’d been “ambushed” by the government, which she said only recently turned over scores of phone and computer records related to her client.
Weitzman said prosecutors made a sincere effort to give Jiau’s team computer records in a timely fashion. He said the U.S. complied with Rakoff’s order to allow Jiau to review this computer evidence in the courtroom for three days.
The judge said Jiau’s access to the evidence was cut off after the second day because of a “violation” in which she accessed an e-mail account on the computer.
Hendon declined to comment about the incident after court, as did Weitzman.
The first arrest in the expert networking case came in November, when Bharara’s office accused Don Ching Trang Chu, another former consultant with Primary Global Research, of being a liaison between the firm and hedge fund clients.
The U.S. alleged that Chu established a relationship with Richard Choo-Beng Lee, a former partner at San Jose, California-based Spherix Capital LLC. Lee was employed as an analyst by SAC Capital Advisors from 1999 to 2004.
Lee, who has been linked to Rajaratnam’s insider-trading ring, has pleaded guilty and is cooperating with the U.S. along with his partner Ali Far.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).