Saturday, May 28, 2011

(BN) Barai Capital's Founder Admits Fraud as Part of Insider-Trading Crackdown

Bloomberg News, sent from my iPhone.

Barai Capital Founder Admits Fraud in Insider-Trading Crackdown

May 28 (Bloomberg) -- Barai Capital Management LP founder Samir Barai pleaded guilty to securities fraud and other charges as part of the U.S. government's largest crackdown on insider trading at hedge funds.

Barai, 39, of New York, also pleaded yesterday in Manhattan federal court to conspiracy to commit securities and wire fraud, wire fraud and obstruction for impeding a federal grand jury probe by destroying evidence. Magistrate Nathaniel Fox said Barai could face as long as 65 years in prison when he is sentenced Aug. 29.

The plea came just hours after Sonny Nguyen, 39, of San Jose, California, and a former senior financial analyst for Nvidia Corp., pleaded guilty before U.S. District Judge Jed Rakoff to conspiracy to commit securities and wire fraud in a related case.

"I deeply regret all of my actions in this case," Barai said.

Barai and Nguyen are among 13 people charged in a federal investigation of insider trading brought by U.S. Attorney Preet Bharara in Manhattan. The probe is part of a larger investigation by Bharara's office of insider trading by hedge funds including Galleon Group LLC.

Barai spoke into a microphone to describe his crimes, saying he conspired with two SAC Capital Advisors LP fund managers, Noah Freeman and Donald Longueuil, to violate federal securities laws. Freeman and Longueuil have pleaded guilty to insider trading charges in the case. Freeman is cooperating with prosecutors.

'Numerous Occasions'

Barai said on "numerous occasions" from early 2006 to late 2010, "I paid for and utilized the services of an expert networking firm who employed persons working at technology companies."

He said that Freeman and Longueuil listened in on calls with expert networking sources who provided "material, nonpublic information including revenues, gross margins and earnings."

"I used this information in making trades," he said. "I also shared this information with Mr. Freeman and Mr. Longueuil so they could make trades at their hedge funds."

Both Barai and Nguyen implicated Winifred Jiau, then a consultant at expert networking firm Primary Global Research LLC in their schemes.

Barai said in May 2008 he participated in calls with Jiau, who provided tips about Marvell Technology Group Ltd., a Santa Clara, California-based maker of chips for personal computers and mobile phones. Jiau is charged with insider trading and is scheduled to go on trial before Rakoff on June 1.

'Conduct Was Wrong'

"I understood that Ms. Jiau had gotten the information from a Marvell employee who was not authorized to discuss it," Barai said. "I understood at the time my conduct was wrong and unlawful."

Daniel Yoo, a spokesman for Marvell, didn't immediately return an e-mail message seeking comment about Barai's statement that inside information came from a Marvell employee.

Barai said that on Nov. 19, 2010, he saw an article in the Wall Street Journal that described a federal grand jury probe in New York investigating hedge fund managers who used expert networking consultants to get inside information.

"I contacted my research analyst and directed him to destroy certain electronic and hard copies related to trading activities," he said.

Barai and his lawyer, Evan Barr, declined to comment after court.

Substantial Assistance

Barai will provide "substantial assistance," prosecutors said in court papers. The U.S. agreed to submit a letter asking U.S. District Judge Deborah Batts to impose a reduced sentence, citing his cooperation.

At a May 12 hearing in federal court in New York, Jason Pflaum, a former analyst at Barai Capital, testified he listened in on phone calls when his boss got nonpublic information on companies from Jiau.

Pflaum said he listened in on calls with expert networkers, recorded them, wrote contemporaneous electronic instant messages and kept notes for Barai, who is hearing impaired. Rakoff ruled the government could use these notes and recordings as evidence against Jiau. Pflaum has pleaded guilty and is cooperating with prosecutors.

Nguyen said in court yesterday that he passed tips about Nvidia's quarterly earnings before they were publicly announced to Jiau. Nvidia, based in Santa Clara, California, is a maker of graphics chips.

Passed Tips

Nguyen told Rakoff that he conspired with Jiau and another man he identified as Stanley Ng to pass and receive tips. "Between 2007 and 2008 I agreed with others to engage in an insider trading scheme," Nguyen said. "I provided material nonpublic information to my co-conspirators."

Rakoff interrupted him to ask, "Who was that?"

"That was Winnie Jiau and Stanley Ng, about Nvidia Corp.'s quarterly financial results before such information was public," Nguyen replied. "In exchange I received stock tips."

Assistant U.S. Attorney Avi Weitzman told Rakoff that Nguyen, who is cooperating with the government, is scheduled to be a witness against Jiau. He also said that Nguyen's co- conspirator "executed securities transactions" in Nvidia and Marvell.

Nguyen faces as long as five years in prison when he is sentenced by Rakoff on Nov. 29, Weitzman said.

Free on Bail

Nguyen, who said he was born in Vietnam and is a U.S. citizen, was permitted to remain free on $100,000 personal recognizance bond and allowed to travel between his home in California and New York.

His lawyer, Douglas Schneider, and Weitzman declined to comment after court. Rakoff told Nguyen to give his passport to court authorities.

Bob Sherbin, a spokesman for Nvidia, said in a telephone interview that Nguyen, who was employed at the company since October 2006, went on administrative leave on May 26 and has now resigned.

Sherbin said Nvidia is cooperating with the New York U.S. attorney's office and the Federal Bureau of Investigation. He also said Jiau worked for a brief period of time at Nvidia as an outside contractor.

The cases are U.S. v. Barai 11-cr-00116, and U.S. v. Nguyen, 11-CR-161, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Mohamed E. Shaheen from iphone

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