Hedge Fund Insider Probe Claims Third Trial Win With Expert Networker Jiau
The conviction of ex-Primary Global Research LLC consultant Winifred Jiau was the third trial win for the U.S. government in its crackdown on insider trading tied to hedge funds.
Jiau, 43, of Fremont, California, was convicted of one count each of conspiracy and securities fraud in Manhattan federal court for passing earnings and other information about Nvidia Corp. (NVDA) and Marvell Technology Group Ltd. (MRVL) to hedge fund managers Noah Freeman, a former SAC Capital Advisors LP portfolio manager and Samir Barai, founder of New York-based Barai Capital Management LP.
She faces as long as 25 years in prison when she is sentenced by U.S. District Judge Jed Rakoff on Sept. 21 and has been in U.S. custody since her arrest in December. Her lawyer, Joanna Hendon, said she would file an appeal after the sentencing.
Hendon argued at trial that the data Jiau passed wasn’t “material,” meaning it wasn’t something a reasonable investor would consider important for trading a stock and it wouldn’t have a bearing on the stock price. After yesterday’s verdict, several jurors said they rejected that claim.
“I was despairing when I heard from those witnesses about what goes on in the system,” said Susan Kohlmeyer, the jury forewoman and an art educator from Westchester, New York, when asked about her impressions of hedge funds and the testimony of cooperating witnesses, including Freeman.
‘Terrible Food Chain’
“There was a lot wrong. There was a terrible food chain,” Kohlmeyer said. “I hope that hedge funds will be re-examined, because there’s a lot of corruption. I lost my appetite for three weeks.”
Parbodh Sharma, 55, a juror from Westchester, who works in the restaurant business, said, “The evidence was so strong nobody had to spend a lot of time to make a decision. It was simple and clear.”
“She played a vital role,” Sharma said when asked his opinion about Jiau’s participation in the insider-trading scheme. “She provided information to the decimal point. That’s unheard of in business.”
Sharma and Kohlmeyer both cited the testimony of Sonny Nguyen, a former Nvidia financial analyst and friend of Jiau who testified for the U.S. that he passed confidential data about the chipmaker’s quarterly earnings to her in August 2008. Nguyen has pleaded guilty and is cooperating.
“Sonny Nguyen said it the best,” Kohlmeyer said as she shook her head. “Greed got the best of him.”
Jiau is the first of the so-called expert networkers to go to trial since the U.S. charged at least a dozen people, including consultants and fund managers, with insider trading beginning in November. At least seven people have pleaded guilty in the case.
Primary Global, based in Mountain View, California, links investors with industry experts at public companies.
“Wini Jiau gave new meaning to the concept of social networking,” U.S. Attorney Preet Bharara in Manhattan said in a statement. “She used and exploited friends at public companies for the purpose of obtaining, and then selling, inside information.”
With Jiau’s conviction, “another link in a corrupt network has been broken,” Bharara said.
Others Pleaded Guilty
Three other former Primary Global employees, Daniel DeVore, Don Ching Trang Chu and Bob Nguyen -- who is not related to Sonny Nguyen -- have pleaded guilty in the case. Another man, James Fleishman, faces trial later this year before Rakoff.
Dan Charnas, a spokesman for Primary Global Research, declined to comment on the verdict yesterday.
Galleon co-founder Raj Rajaratnam was convicted May 11 of directing the largest hedge fund insider-trading ring and faces almost 20 years in prison at his July 29 sentencing. Ex-Galleon trader Zvi Goffer was convicted with two others June 13 on related charges and faces a similar sentence Sept. 21.
At trial, Hendon argued that Barai had at least a dozen other people at publicly traded companies who provided him with inside information who she said weren’t charged.
Assistant Manhattan U.S. Attorneys Avi Weitzman and David Leibowitz called three cooperators who pleaded guilty to insider-trading charges to describe the scheme, including Freeman. He testified he and Barai paid Jiau $10,000 for her insider’s tips about the two Santa Clara, California-based chipmakers.
Sonny Nguyen said he passed information to Jiau out of friendship, because he wanted to make money and because he had grown frustrated with her incessant calls to him before earnings were announced.
While Jiau said in e-mails to fund managers that she needed “$2K” or $2,000 per source for tips, Sonny Nguyen said Jiau never paid him and instead took him to lunch and once gave him two live lobsters as a gift.
Barai’s assistant, Jason Pflaum, who also pleaded guilty and is cooperating with the U.S., testified he listened in on calls between his boss and Jiau, sent him contemporaneous instant messages to aid Barai, who is hearing impaired, as well as e-mails the three exchanged.
“I would love to work with you again, same relationship meaning same amount as you were in the last job?” Jiau wrote to Barai in a March 2008 e-mail. “There are costs built in with my sources. Noah absorbs the costs, I need to pay my 2 secured sources as they supply the actual numbers to the decimal point.”
Jurors also heard several recordings of Jiau’s conversations with Barai and Freeman, which they called “data dumps.”
Spoke in Code
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.
“So drop some of your extra sugar to me,” she wrote. “Cooks don’t talk to me without sugar.”
Juror’s also saw evidence of Barai’s fund buying hundreds of thousands of shares of Marvell stock in May 2008 after obtaining information Jiau obtained from another friend, Stanley Ng, an accountant who worked for Marvell and tipped her about the company’s earnings in May 2008.
Ex-SAC Portfolio Manager Freeman, who pleaded guilty to securities fraud, testified at Jiau’s trial that he made millions of dollars on illegal inside information using expert networking firms, which he likened to online dating service Match.com LP.
He said Jiau passed him “perfect information” about Nvidia and Marvell for at least eight quarters, and that he made $5 million to $10 million on Nvidia and “broke even” on Marvell.
Freeman also that he previously used information from Jiau and other expert networking consultants when he worked for Sonar Capital Management LLC in Boston.
Mark Hyland, a lawyer for Sonar Capital and its founder Neil Druker, said at the time Freeman testified that “any statement that Sonar Capital used insider trading as a business model is categorically false.”
Prosecutors showed the jury evidence that Jiau had also worked at Nvidia briefly in 2007. They argued that she befriended both Sonny Nguyen and Ng to get her the information she then sold to Barai and Freeman.
Ng was placed on administrative leave by Marvell in January after he refused to cooperate with an internal investigation, court records show.
Prosecutors said Freeman and Barai found Jiau was useful in helping their funds succeed by getting “actual numbers to the decimal point” about a company’s earnings ahead of the public announcement. They contracted with Primary Global to obtain for Jiau’s information exclusively, the U.S. said.
“Just like her hedge fund clients, she did it for the money,” Weitzman said.
Barai’s plea on May 27 came just hours after Sonny Nguyen, 39, of San Jose, California, pleaded guilty before Rakoff to conspiracy to commit securities and wire fraud. Barai admitted conspiring with Freeman and Donald Longueuil, a former SAC Capital Advisors LP fund manager, to violate federal securities laws.
Longueuil pleaded guilty to federal charges in April.
During their guilty pleas, both Barai and Sonny Nguyen implicatedJiau in their schemes.
Barai, who isn’t cooperating with the U.S., said when he pleaded guilty that in May 2008, he participated in calls with Jiau, who provided tips about Marvell.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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