U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21844 / February 8, 2011
SEC v. Mark Anthony Longoria, Daniel L. DeVore, James Fleishman, Bob Nguyen, Winifred Jiau, Walter Shimoon, Samir Barai, Jason Pflaum, Barai Capital Management, Noah Freeman, and Donald Longueuil, Civil Action No. 11-CV- 0753 (SDNY)
SEC Charges Hedge Fund Managers and Traders in $30 Million Expert Network Insider Trading Scheme
On February 8, 2011, the Securities and Exchange Commission filed an amended complaint in its expert network insider trading case pending in the United States District Court for the Southern District of New York, charging a New York-based hedge fund and four hedge fund portfolio managers and analysts who illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants. According to the complaint, the scheme netted more than $30 million from trades based on material, nonpublic information about such companies as AMD, Seagate Technology, Western Digital, Fairchild Semiconductor, and Marvell.
The charges are the first against traders in the SEC's ongoing investigation of insider trading involving expert networks. The SEC filed its initial charges in the case last week against technology company employees who illegally tipped hedge funds and other investors with material nonpublic information about their companies in return for hundreds of thousands of dollars in sham consulting fees.
In its amended complaint filed today in federal court in Manhattan, the SEC alleges that four hedge fund portfolio managers and analysts received illegal tips from the expert network consultants and then caused their hedge funds to trade on the inside information.
Last Thursday, the SEC filed an action against 4 corporate insiders who were acting as consultants to the firm Primary Global Research LLC (PGR) - Mark Anthony Longoria, Daniel L. DeVore, Winifred Jiau and Walter Shimoon - for obtaining material, non-public confidential information about quarterly earnings and performance data and sharing that information with hedge funds and other clients of PGR who traded on the inside information. In addition, the SEC charged 2 PGR employees, Bob Nguyen and James Fleishman, for acting as conduits by receiving inside information from PGR consultants and passing that information directly to PGR clients.
The SEC's amended complaint alleges:
The SEC's amended complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and additionally charges Barai, Pflaum, Freeman and Longueuil with aiding and abetting others' violations of Section 10(b) and Rule 10b-5 thereunder. The complaint also charges Barai, Pflaum and Barai Capital with violations of Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties.