Tuesday, 3 May 2016
Last updated 6 min ago
Jan 31 2011 | 1:43am ET
The fourth hedge fund raided as part of a wide-ranging insider-trading probe has been identified, and its founder and an analyst are allegedly implicated in the scam.
The firm receiving the unwelcome visit from the Federal Bureau of Investigation in mid-November is New York-based Barai Capital Management, The Wall Street Journal reports. Firm founder Samir Barai, a former Citigroup hedge fund manager, has also been identified as the unnamed co-conspirator in the complaint against Winifred Jiau, the seventh person arrested in the case.
The government has not yet identified Barai as the target of an FBI raid, as it has with three other hedge funds raided in November—Diamondback Capital Management, Level Global Advisors and Loch Capital Management. All three of those firms say they have been told they are not targets of the investigation.
Nor has Barai been accused of any wrongdoing. But the person identified as cooperating witness "CW-1" in the Jiau complaint is not so lucky: He is Jason Pflaum, an analyst at Barai, according to the Journal. The Jiau complaint indicates that he pleaded guilty to conspiracy and securities fraud charges.
If Pflaum is CW-1, he is the first of the eight people known to have been charged in the case not to have worked for expert-network provided Primary Global Research as either an employee or consultant. But, according to the complaint, he was the recipient of some non-public information from at least one Primary Global consultant: Jiau.
"There were some individuals who CC-1," now identified as Barai, "communicated directly with in order to receive inside information," the complaint alleges. "CC-1 sometimes recorded CC-1's conversations with Jiau on a digital audio recorder… and/or had CW-1 listen in on the conversations so that CW-1 heard the inside information provided by Jiau."
Barai earned some $820,000 trading in 2008 on tips Jiau offered about Marvell Technology Group, according to the complaint, filed last month.
Unlike the raids against the other three hedge funds, that at Barai's Manhattan offices attracted little notice, and were not even publicly known until Jiau's arrest. According to a security guard at the building, two FBI agents arrived one afternoon in November.
"They just showed me the ID and said they were going to Barai Capital," Augustus Tudzi told the Journal.
The alleged insider-trading at Barai occurred in May and June 2008, the year Barai launched his eponymous firm. He left Citi in 2007 when it decided to close its Tribeca Global Management hedge fund unit.
Shortly after the raid, Barai vacated the offices visited by the FBI agents, although the Journal reports that its exit had been previously planned. It isn't clear whether the hedge fund, which managed less than $100 million last fall, has moved or closed its doors. The fund had managed to return 13% from inception through October, according to trade publication Opalesque.