Donald Longueuil, a former hedge-fund manager at SAC Capital Advisors, was sentenced to 2.5 years in prison Friday after pleading guilty to insider-trading charges. Although not a direct client of Primary Global Research (PGR), Longueuil received inside information from Noah Freeman and Samir Barai, who paid PGR for exclusive access to Winifred Jiau. (For complete list of the players, click here.)
Longueuil was one of the last to be prosecuted but one of the first of those involved with PGR to be sentenced. Unlike the cooperating witnesses, whose sentencing the government has postponed, Longueuil had little to offer the government in return for a guilty plea. Although he did not receive the sentence of 37 to 46 months requested by the government, Longueuil’s case will be an effective deterrent for other portfolio managers.
In the last 18 months, 49 defendants have been charged in connection with insider trading and of those, 46 have either pleaded guilty or been found guilty after trial. Included in these totals are 14 actions brought in connection with the expert network, Primary Global Research (PGR). 13 of the 14 have pleaded guilty or been found guilty. 6 clients of PGR, 5 experts affiliated with PGR and 2 employees of PGR have pleaded guilty. The one holdout is James Fleishman, a salesperson for PGR, who will go to trial next month.
There have been 2 distinct phases to the investigation so far. The first phase became public in October 2009 with the announcement of charges against Galleon Group. The second phase became public the following year, with charges against Primary Global Research in November 2010. We think we are now entering a third phase to the investigation. The success that prosecutors have enjoyed so far has created momentum to continue the investigation. Since so many of those indicted have pleaded guilty rather than going to trial, more of the government’s resources can be allocated to additional investigation rather than trial preparation.
Recent court filings relating to the upcoming Fleishman trial reveal that prosecutors have a rich lode of materials that have not yet been fully mined. The government has gathered information on at least 50 hedge funds through 300 hours of wiretaps containing conversations with some 250 consultants or experts. It has over 11,000 pages of instant messages between Primary Global employees and Primary Global clients, and 6,500 pages of email. In 2009 prosecutors tapped one of Primary Global’s conference lines and secretly recorded calls involving 97 clients of the expert network firm.
Although not covered by the press, recent enforcement actions against two registered broker dealers make it clear that regulatory scrutiny is not limited to expert networks. The SEC filed administrative proceedings against Buckingham Research in November and against Janney Montgomery Scott last week for failure to have in place proper compliance policies to prevent insider trading. The SEC filing alleged that Janney’s equity analysts had received material, nonpublic information from Janney investment bankers, and passed that MNPI on to their asset management clients.