Bloomberg News

Ex-SAC Capital Manager Testifies He Committed Crimes at Fund

June 03, 2011

(Updates with testimony from witness in third paragraph.)

June 3 (Bloomberg) -- Ex-SAC Capital Advisors LP portfolio manager Noah Freeman told a federal jury in New York that he committed insider trading while working at two separate hedge funds, including while overseeing a $300 million fund at SAC.

Freeman, 35, who pleaded guilty to securities fraud charges in February and is cooperating with the government, testified today against Winifred Jiau, 43, the first of the so-called expert networkers to go on trial as part of a U.S. crackdown on insider trading of hedge funds. She’s accused of passing illegal tips to fund managers.

Freeman said he was approached by agents with the Federal Bureau of Investigation in late November or early December, who played a recording of a conversation he had with Jiau and Sam Barai, founder of New York-based Barai Capital Management. He said he promptly hired a lawyer and started cooperating with the government.

“I told representatives of law enforcement the crimes I committed and other people had committed,” Freeman said.

“Did you volunteer information about other individuals who were committing crimes?”

“I did,” Freeman said. “On, at least in passing, more than a dozen.”

‘Business Model’

Freeman, who graduated from Harvard College in 1999, testified he committed securities fraud while working at Sonar Capital Management LLC in Boston and later during the almost two years he spent as a portfolio manager at SAC Capital.

When he pleaded guilty in February, he said his conspiracy had lasted five years from 2005 through 2010. At the time, he didn’t identify the two funds where he worked.

Asked about the practice of using expert networkers to get inside information while at Sonar, Freeman said, “It was a regularly employed part of our business model.”

Jiau, of Fremont, California, denies the charges. The Mountain View, California-based firm where she worked links investors with industry experts at public companies. If convicted, she could face as long as 25 years in prison.

‘Extremely Helpful’

Since November, the office of Manhattan U.S. Attorney Preet Bharara has charged 13 people in its probe of expert networkers and insider trading at hedge funds. Eight people have pleaded guilty, including Barai, who entered his plea on May 27.

Jiau’s lawyer, Joanna Hendon, said today she will call Barai as a witness during her case.

Freeman testified for about an hour before court recessed for the day. His testimony is scheduled to resume June 6. He is the first of three cooperating witnesses that the government said would be called to testify.

Freeman said Jiau was his source of inside information on Taiwan Semiconductor Manufacturing Co., Marvell Technology Group Ltd. and Nvdia Corp.

He called Primary Global “an expert introduction service” and said he and others at his funds traded on stock based on the information Jiau provided. Freeman said he found Jiau’s tips “extremely helpful.”

Freeman testified that he made a total of $20 million to $30 million using inside information while at Sonar. He said he earned $5 million to $10 million on Jiau’s tips on Nvidia and broke even on the information she provided on Marvell.

‘Acting Unlawfully’

“We communicated with her so she could give us inside information,” Freeman said. “I knew I was acting unlawfully,” Freeman said, telling jurors he could face as long as 25 years in prison.

Jonathan Gasthalter, a spokesman for SAC Capital, declined to comment.

Mark Hyland, a lawyer for Sonar Capital and founder Neil Druker, said in an e-mailed statement that Freeman was fired in May 2008.

Sonar Capital hasn’t been charged with any wrongdoing by prosecutors or the U.S. Securities and Exchange Commission.

“In pleading guilty to two felony counts it is now apparent that, while employed by Sonar he violated Sonar’s strict and robust policies against trading on the basis of inside information,” Hyland said in the statement. “Any statement that Sonar Capital used insider trading as a business model is categorically false.”

Freeman’s lawyer, Benjamin Rosenberg of Dechert LLP, didn’t immediately return a call seeking comment.

Another former SAC fund manager, Donald Longueuil, pleaded guilty April 28 to insider trading charges in federal court in New York.

The case is U.S. v. Jiau, 11-CR-161, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Peter Blumberg, Glenn Holdcraft

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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