Justice Dept. charges 4 with insider trading at hedge funds
Tuesday, February 8, 2011; 10:52 PM
On Nov. 20, after reading reports about a federal probe of insider trading, hedge fund manager Samir Barai allegedly sent a BlackBerry message to a colleague with some blunt instructions: Go to the office and "Shred as much as u can," "Put all ur data files onto an encrypted drive," and "delete all e-mails" from two particular contacts.
"They need proof that we acted on something," Barai allegedly added.
Those communications and others are at the heart of insider trading and obstruction of justice charges the government announced Tuesday in a widening investigation of hedge funds and firms that feed them research.
The Justice Department charged three hedge fund portfolio managers and one analyst in a criminal conspiracy that allegedly involved information about companies such as Advanced Micro Devices and Fairchild Semiconductor International.
The Securities and Exchange Commission, which filed civil charges against the defendants, said hedge funds and other traders involved in the alleged misconduct gained or avoided losing about $30 million based on inside information.
Two of the defendants, Barai and Donald Longueuil, a former research analyst and portfolio manager, were also charged with obstruction of justice in what the U.S. attorney in Manhattan, Preet Bharara, called a "brazen coverup."
The government said Longueuil described his effort to destroy two computer flash drives in a recorded conversation with fellow defendant Noah Freeman, who at the time was cooperating with investigators.
According to the government, Longueuil told Freeman that he "pulled the external drives apart" with pliers. Then he put the pieces "into four separate little baggies," stuffed them in his jacket, and at 2 a.m., "I go on like a 20-block walk around the city . . . and try to find a garbage truck."
Longueuil said he threw the pieces "in the back of, like, random garbage trucks . . . four different garbage trucks."
"I pressed the eject button and everything's [expletive] gone," he said.
At a New York news conference, Bharara said the coverup was "like something out of a bad movie."
The alleged conspirators "lacked a mobster's better-honed instinct for conversational discretion," said Janice K. Fedarcyk, head of the FBI's New York field office.