Federal authorities expanded a crackdown on insider trading that masks itself as legitimate market research with two new arrests and the announcement of two guilty pleas - charges that were revealed Tuesday against three hedge fund portfolio managers and a hedge fund analyst.
The charges contained in papers filed in U.S. District Court in Manhattan were to be explained at length at an afternoon news conference.
The investigation has so far concentrated on a group of hedge fund portfolio managers who authorities say tried to learn inside information about public companies through contacts at a California public research firm, Primary Global Research. The company boasted of its research results but authorities say it sometimes specialized in linking corrupt employees of public companies willing to prematurely divulge earnings results or acquisition announcements with hedge fund managers eager for a trading edge.
In court papers, charges were outlined against Samir Barai, 38, who owned a New York-based hedge fund company that bears his name; Donald Longueuil, 34; Noah Freeman, 34; and Jason Pflaum, 37. Freeman and Longueuil were described as hedge fund portfolio managers while Pflaum was described as a research analyst.
A criminal complaint unsealed Tuesday said Pflaum has pleaded guilty to conspiracy and securities fraud in a cooperation deal that calls for him to receive a reduced sentence if he is helpful. Freeman has also pleaded guilty to conspiracy to commit securities fraud and wire fraud in a similar deal aimed at leniency.
The FBI said in court papers that Barai and Longueuil were charged with obstruction of justice in addition to conspiracy to commit securities fraud and wire fraud, charges more routinely filed to describe insider trading crimes.
It said it based the obstruction charge in part on evidence it gathered after it seized a laptop computer used by Pflaum, files from Pflaum's desktop computer and an audio recorder that Barai used to record consensual telephone conversations with Winifred Jiau, a former Primary Global Research consultant already charged in the case.
According to the complaint, Barai and Longueuil in November tried to destroy digital records and documents reflecting their receipt of inside information from employees at public companies and their sharing of inside information with each other and Freeman.
It was not immediately clear who will represent Barai and Longueuil when they make initial court appearances in federal court in Manhattan on Tuesday.