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Jiau Jury Starts Weighing Charges of Hedge Fund Insider-Trading

A federal jury in Manhattan failed to reach a verdict yesterday in the case of Winifred Jiau, a former Primary Global Research LLC consultant charged with passing illegal inside tips to hedge fund managers.

Prosecutors say Jiau got financial information from friends at Nvidia Corp. and Marvell Technology Group Ltd. and sold the data to Noah Freeman, a former SAC Capital Advisors LP portfolio manager, and to Samir Barai, founder of New York-based Barai Capital Management LP. Freeman testified that he and Barai paid $10,000 a month for exclusive access to Jiau.

Jiau, 43, of Fremont, California, is charged with securities fraud and conspiracy to commit securities fraud. If convicted, she faces as long as 25 years in prison.

She denies the charges. Her lawyer, Joanna Hendon, argued in a closing statement yesterday that while her client did pass the information, it wasn’t “material,” meaning it wasn’t something a reasonable investor would consider important in trading and it wouldn’t have a bearing on the stock price.

Jiau is the first of the so-called expert networkers to go on trial since the U.S. charged at least a dozen people, including consultants and fund managers, with insider trading beginning in November. Primary Global, based in Mountain View, California, links investors with industry experts at public companies.

Jiau’s Trading

Freeman and Jason Pflaum, an analyst who worked for Barai, both pleaded guilty and testified for the prosecution. A third man who admitted being part of the scheme, Sonny Nguyen, a former Nvidia financial analyst who was a friend of Jiau’s, testified that he passed confidential information about the chipmaker’s quarterly earnings to her in August 2008.

In a statement yesterday rebutting Hendon’s argument, Assistant U.S. Attorney David Leibowitz told the jury that Jiau’s own actions belied the claim that the information she passed wasn’t material.

He said that in May 2008, at the same time Jiau was passing Freeman and Barai Marvell earnings information before its public disclosure, Jiau bought 875 shares of Marvell stock for her own account. Jiau also purchased Nvidia stock at the same time she was passing information about that company.

“Ms. Hendon’s own client refutes what she spent more than an hour talking about yesterday,” Leibowitz said. “This is evidence that the information Winifred Jiau obtained and passed was important and material.”

Code Talk

Freeman told the jury that he, Barai and Jiau spoke in code. Company insiders were “cooks,” money was “sugar” and inside information was “recipes,” he said.

“Cooks are on strike now,” Jiau wrote in a June 3, 2008, e-mail to Barai, which Leibowitz showed jurors yesterday. “So drop some of your extra sugar to me,” she wrote. “Cooks don’t talk to me without sugar.”

Leibowitz also cited a message Jiau sent Barai when the portfolio manager started his new fund.

“Same relationship meaning same amount as you were in the last job,” Jiau wrote in the March 10, 2008, e-mail.

“There are costs,” she wrote. “I need to pay to my 2 secured sources,” Jiau continued. “They supply the actual numbers to the decimal point.”

Leibowitz called it “devastating evidence.”

This afternoon, jurors asked U.S. District Judge Jed Rakoff questions about the laws on securities fraud and to re-hear testimony from Nguyen. They are to resume deliberations June 20.

The case is U.S. v. Jiau, 1:11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).

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