We estimate over 40 individuals have been charged or implicated in insider trading cases relating to third party research providers. As outlined below the majority have pleaded guilty or been found guilty if the cases have gone to trial. At least three different expert networks have been involved in sourcing experts which subsequently provided material non-public information according to prosecutors. An additional four independent boutique research firms have been implicated in insider cases, as outlined below.
Employees of Primary Global Research (PGR):
Don Ching Trang Chu, who had worked as a Taiwan liaison at PGR, pleaded guilty on June 7th, 2011 to one count each of conspiracy to commit securities fraud and conspiracy to commit wire fraud. Chu was arrested on November 24th, 2010 and accused of passing inside information on Atheros Communications Inc. (ATHR), Broadcom Corporation (BRCM) and Sierra Wireless Inc. (SWIR), in addition to the unnamed tech company thought to be AMD.
James Fleishman was a salesperson for PGR arrested December 16, 2010 on charges that he arranged for hedge funds to speak to consultants, knowing the consultants would provide inside information to the funds. He was convicted of conspiracy to commit securities fraud and conspiracy to commit wire fraud in September, 2011 and sentenced to 2 1/2 years prison in December 2011.
Bob Nguyen, a former semiconductor vertical analyst at PGR, pleaded guilty on January 12th, 2011 to providing inside information to PGR clients. Among other things, Nguyen was accused of obtaining confidential Dell pricing information and information on Dell’s utilization of Western Digital and Seagate hard drives from Daniel DeVore and passing these to selected clients in emails titled “Handle With Care.”
Clients of PGR:
Samir Barai, founder of New York-based Barai Capital Management, which reportedly ran less than $100 million in assets, pleaded guilty May 27, 2011 to securities fraud and other charges. Barai was arrested February 8, 2011 and named as a co-conspirator (CC-1) in the Winifred Jiau complaint, allegedly receiving inside information about Marvell and NVDIA from Jiau. Prior to founding Barai Capital, he worked for Citigroup’s Tribeca fund and Ziff Brothers Investments.
Richard Choo-Beng Lee pleaded guilty in 2009 in the insider-trading prosecution of Galleon Group hedge fund founder Raj Rajaratnam and 22 other traders. Lee, who once worked for hedge fund SAC Capital, became a client of PGR in late 2008 or early 2009 according to the complaint against Chu. Lee was a witness against Chu and Longoria.
Noah Freeman, a former portfolio manager in SAC Capital’s Boston office, who entered a guilty plea February 7, 2011 after acting as a cooperating witness for the government against Barai and Longueuil. Freeman and Barai maintained an exclusive relationship with Jiau, an expert provided by PGR and separately charged in December. Freeman allegedly shared information obtained from Jiau with Longueuil. Prior to SAC, Freeman was at Sonar Capital Management LLC, Brookside Capital and Bain Capital.
Donald Longueuil, a former portfolio manager at CR Intrinsic Investors LLC, an affiliate of SAC Capital pleaded guilty to conspiracy to commit securities and wire fraud and to securities fraud April 28, 2011. Longueuil was sentenced to 30 months in jail in July, 2011. He reached a settlement of $350,000 with the SEC in September, 2011, which was credited from the $1.25 million he paid in criminal forfeiture when pleading guilty. Besides getting tips from Jiau via Freeman, Longueuil and Freeman each had their own network of sources, going beyond experts recruited by PGR. He previously worked for Empire Capital Management, LLC, and Morgan Stanley.
Jason Pflaum, a technology analyst at Barai Capital working for Samir Barai, entered a guilty plea December 14, 2010, after allegedly obtaining inside information about Marvell and NVDIA from Jiau. Pflaum was a cooperating witness against Barai.
Experts Affiliated with PGR:
Daniel DeVore, a global supply manager at Dell Computer, pleaded guilty on December 10, 2010 and acted as a cooperating witness (CW-3) and providing evidence against Fleishman and Nguyen. DeVore allegedly received $145,740 for consultations.
Alnoor Ebrahim, a former director of channel marketing and sales operations for AT&T Mobility’s wireless group, pleaded guilty June 18, 2012 to providing inside information about sales of Apple Inc.’s iPhone and Research in Motion Ltd.’s Blackberry products between 2008 and 2010. Ebrahim received about $180,000 for sharing information during that period.
Winifred Jiau, a contractor employed by NVDIA, was convicted on June 20, 2011 on securities fraud and conspiracy to pass along confidential information, and sentenced in September 2011 to 4 years in prison. She was arrested on December 29, 2010 and accused of providing inside information about computer chipmakers Marvell Technology Group Ltd. and Nvidia Corp. Jiau was part of PGR’s “private” network, meaning she was reserved to consult exclusively with Barai and Freeman, who sometimes called her together. The complaint says that Jiau was paid $10,000 per month by PGR, but the amounts paid by Barai Capital and Sonar Capital/SAC to PGR are not disclosed. Jiau allegedly made $200,000 between September 2006 and November 2008 through consultations arranged by PGR. Jiau obtained information Marvell accountant Stanley Ng and Nvidia financial analyst Sonny Nguyen.
Manosha Karunatilaka, a manager at Taiwan Semiconductor Manufacturing Company North America in Burlington, Mass., pleaded guilty to one count of conspiracy to commit wire and securities fraud on May 11, 2011. He was sentenced to 18 months in prison in September 2011. He was arrested December 16, 2010 and accused of providing bookings information about clients of Taiwan Semiconductor. He reportedly earned about $35,000 between January 2009 and June 2010.
Mark Anthony “Tony” Longoria, a Round Rock, Texas-based supply chain manager for Advanced Micro Devices Inc., pleaded guilty June 30, 2011 to providing confidential details about AMD revenue and sales. Longoria was paid $200,000 by PGR for consultations occurring between January 2008 and March 2010. Longoria’s sentence required him to pay $197,178.94, which was comprised of disgorgement of ill-gotten gains of $178,850, together with prejudgment interest of $18,328.94.
Stanley Ng, an employee in the finance department of Marvell Technology Group Ltd., pleaded guilty December 2011 to a single count of conspiracy to commit securities fraud and wire fraud. He was arrested August 10, 2011 and accused of passing Marvell earnings and profit information to Winifred Jiau and Sonny Nguyen.
Sonny Nguyen, a senior financial analyst for Nvidia Corp., pleaded guilty to conspiracy to commit securities and wire fraud in May, 2011. Nguyen passed information about Nvidia’s quarterly earnings before they were publicly announced to Winifred Jiau, a former consultant with expert networking firm Primary Global Research LLC.
Walter Shimoon, a senior director of business development at Flextronics International, pleaded guilty July 5, 2011 to providing confidential information about Flextronics and Apple Inc. The complaint alleges that he was paid $22,000 for consultations occurring between January 2008 and June of 2010. Shimoon in court also admitted to being paid $27,500 by independent research firm Broadband Research LLC for providing confidential nonpublic information about his own company, as well as about OmniVision Technologies Inc., Apple and Cisco Systems Inc. (see entry on Broadband Research LLC below).
“Fairchild Source”, mentioned in the complaint against Barai, was an “insider” at South Portland, Maine-based chip maker Fairchild, who allegedly provided information about Fairchild’s sales, profit margins and inventory, and told him how much revenue the company collected from customers including Dell Inc., Samsung Electronics Co. Ltd. and Nokia Oyj. The Fairchild Source was paid about $48,000 between October 2006 and October 2009. It is not clear whether this source was sourced through PGR or directly by Barai.
“Actel Source”, named complaint against Barai, was an employee of Actel who had worked at various semiconductor firms and allegedly provided Actel revenue information prior to public release. It is not clear whether this source was sourced through PGR or directly by Barai.
Other Cases With Connections to Expert Networks
Yves Benhamou, a French doctor arrested November 2, 2010, pleaded guilty in April 2011 to passing information about clinical trial of a Human Genome Sciences drug to Joseph “Chip” Skowron of Frontpoint Partners. In December 2011 he was sentenced to time served and three years supervised release in addition to forfeiting $52,138 and paying $5.9 million in restitution. Dr. Benhamou served as an adviser on a clinical drug trial. Benhamou was reportedly sourced through expert networks, but passed the inside information outside of any expert network.
Joseph F. “Chip” Skowron, a former portfolio manager for Frontpoint Partners, pleaded guilty August 15, 2011 to conspiracy to commit securities fraud and obstruction of justice. He admitted that he had avoided $30 million in losses by selling his holdings in Human Genome Sciences after learning from Dr. Yves Benhamou of a major setback in a clinical trial for Albuferon, a hepatitis C drug.
James Silverman, portfolio manager of Risk Reward Capital, a hedge fund with $24 million in capital, was charged by Massachusetts securities regulators with obtaining inside information on two pharmaceutical companies. The complaint accused Silverman of using expert networks to get inside information on clinical trials that helped him to “score dramatic returns” for his fund. The complaint states that Silverman paid $80,000 to retain expert networks after losing 16.9% in 2007, and after retaining expert networks in early 2008, his fund returned 55% in 2009 and 52% in 2010.
Mathew Martoma, a former portfolio manager at CR Intrinsic which is affiliated with SAC Capital, was charged in November 2012 with three counts of securities fraud for allegedly obtaining confidential clinical trial information from Dr. Sidney Gilman on an Alzheimer’s drug produced by Elan Corporation and Wyeth. The complaint was updated in August 2013 that he had received additional confidential data from a second doctor, Dr. Joel Ross, about a drug being developed by the pharmaceutical companies Elan and Wyeth.
Dr. Sidney Gilman oversaw the clinical trials for the Alzheimer’s drug through paid consultations that took place between 2006 and 2008, and were arranged by a New York-based expert network firm. The SEC said that Gilman earned nearly $108,000 between 2006 and 2008 from fifty-nine consultations with portfolio managers and analysts at CR Intrinsic and SAC Capital, including forty-two consultations just with Martoma. His fee was $1000 per hour.
Dr. Joel Ross, a prominent New Jersey doctor specializing in Alzheimer’s disease, was named as one of two physicians accused of leaking secret information about clinical drug trials to Mathew Martoma. Dr. Ross was sourced through an unnamed New York-based expert network.
Broadband Research LLC
John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., was arrested February 17, 2012 on charges of one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud and two counts of securities fraud. The complaint alleges that from 2008 to 2010, Kinnucan obtained nonpublic information such as quarterly revenue numbers from co-conspirators who worked at publicly traded companies such as F5 Networks Inc., SanDisk and Flextronics International Ltd. Kinnucan first received media attention after he sent an email on Oct. 26 2010 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation. He allegedly left threatening phone messages for prosecutors. Investigators wiretapped Kinnucan’s cellphone calls with Donald Longueuil, a former SAC portfolio manager, and Level Global Investors LP co-founder Anthony Chiasson.
Donald Barnetson, formerly a senior director of outbound marketing at SanDisk, the biggest maker of flash-memory cards, pleaded guilty to one count of conspiracy to commit securities and wire fraud on February 17, 2012. He allegedly tipped Kinnucan in July 2010 about SanDisk’s anticipated revenues, which weren’t public and on another occasion revealed confidential negotiations about a legal dispute between SanDisk and Apple Inc. Prosecutors claim that Kinnucan paid Barnetson by investing $25,000 in a business he was starting, as well as through meals at expensive restaurants and food deliveries. The complaint also alleged that Kinnucan also gave Barnetson inside information about other companies.
Anthony Chiasson, a portfolio manager and co-founder of Level Global Investors, was indicted on charges of conspiracy and securities fraud on February 8, 2012. Chiasson is accused of obtaining inside information on Dell from a former Dell employee, leading to trades allegedly yielding $53 million in profits for Level Global. Chiasson has pleaded not guilty. Wiretaps of John Kinnucan were used by prosecutors in the case against Chiasson. Although Level Global was a client of Primary Global Research, wiretaps of PGR clients apparently did not include any evidence against Chiasson.
Carlson Capital LP, a $4.4 billion hedge-fund firm based in Dallas, said in a release on February 17, 2012 that one of its former portfolio managers had received inside information from Kinnucan. The unnamed individual was at the firm for nine months and left in March 2011.
Coda Group Inc.
Karl Motey, a former sell side technology analyst who ran his own independent research boutique, Coda Group Inc., pleaded guilty on Dec. 14, 2010. He signed up as a PGR client at the request of the Government, and made over 60 calls seeking incriminating evidence. Motey was apparently fingered by one of his hedge fund clients (unnamed, possibly Freeman), who is cooperating with the Government. Motey, who is identified as CW-2 in the complaint against Fleishman et al., provided evidence against Fleishman, Nguyen, Longoria, Shimoon and Karunatilaka. Motey also was instrumental in securities fraud charges against one of his clients, Doug Whitman, of Whitman Capital.
Doug Whitman, of Whitman Capital, was convicted of conspiracy and securities fraud on August 20, 2012 for obtaining inside information from Karl Motey, Roomy Khan and Wesley Wang, a former hedge-fund consultant. Whitman Capital was a $100 million hedge fund based in Menlo Park California. Whitman pleaded not guilty and mounted a vigorous defense which included the argument that seeking non-public information is a duty of all investors.
Insight Research LLC
Tai Nguyen, a former sell side analyst who ran his own independent equity research firm Insight Research LLC, pleaded guilty to insider trading on June 26, 2012. Nguyen was accused of trading Abaxis, Inc. based on inside information he received from his brother, who worked in the finance department at Abaxis. Nguyen also passed that same information to Samir Barai of Barai Capital Management and Noah Freeman of Sonar Capital Management, who he apparently met through Primary Global Research. Nguyen faces between 46 months to 57 months in prison. He also agreed to forfeit $3.9 million.
DigitalRoute LLC
Sandeep Aggarwal, a former sell-side technology stock analyst who set up his own boutique, was charged in July 2013 with leaking secret news in 2009 about a joint venture between Microsoft and Yahoo to at least two hedge funds, including SAC. Prosecutors said that Aggarwal tipped off Richard Lee, a former SAC Capital employee who pleaded guilty to insider trading charges in July 2013. Aggarwal worked at Microsoft in a strategy position giving him access to Microsoft’s accounting staff before joining Citigroup as an equity analyst in 2005. Aggarwal went to Oppenheimer & Co as a VP and Senior Internet analyst in 2007 and joined Collins Stewart as a Managing Director in 2008. Aggarwal joined Caris & Co. as a Managing Director in 2010. He left Caris after a year to set up his own research boutique, DigitalRoute LLC. The firm provided industry research on internet and e-commerce companies to financial and corporate clients.