(Updates with additional testimony in seventh paragraph.)
June 7 (Bloomberg) -- A former SAC Capital Advisors LP portfolio manager told a jury he made millions of dollars on illegal inside information using expert networking firms, which he likened to online dating service Match.com LP.
Noah Freeman, who pleaded guilty to securities fraud and is cooperating with the government, resumed his testimony yesterday in federal court in New York against Winifred Jiau, 43. He said she passed him “perfect information” about Nvidia Corp. and Marvell Technology Group Ltd. for at least eight quarters, and that he made $5 million to $10 million on Nvidia and “broke even” on Marvell.
Jiau, of Fremont, California, is a former Primary Global Research LLC consultant and the first of the so-called expert networkers to go on trial as part of a U.S. crackdown on insider trading at hedge funds. Charged with conspiracy and securities fraud, she faces as long as 25 years in prison if convicted.
Freeman, 35, said the networking firms matched portfolio managers with specialists in public companies from a database of consultants. He called them “expert introduction firms” adding, “They are firms where they introduce employees of these companies to fund managers, sort of like Match.com.”
$1,000 a Call
Firms such as Primary Global would provide a list of 20 consultants and the portfolio managers would choose to speak to a specialist for a fee, as much as $1,000 for a telephone call. Freeman said SAC Capital used Primary Global “almost exclusively, if not exclusively” as its expert networking firm.
He said Primary Global provided another service, called a “private” network of experts that managers could use exclusively for a fee. The firm also provided a “season pass” that would allow fund managers to get unlimited access to an insider for a flat rate.
“At SAC we almost exclusively used Primary Global Research,” Freeman testified yesterday.
Assistant U.S. Attorney Avi Weitzman asked Freeman how expert networkers were paid at Sonar Capital Management LLC, where Freeman previously worked.
“Through checks,” Freeman said. “They sent us invoices I believe quarterly and we paid them with checks.”
Weitzman asked Freeman if the method of payment to these firms changed when he went to SAC Capital.
“Yes,” Freeman said, “At Sonar we paid PGR by sending them checks. At SAC we paid them through trading stocks with them.”
He added, “Trading commissions I think is the traditional term.”
Freeman said he had a secret agreement with Donald Longueuil, a former SAC Capital fund manager and the best man at his wedding, and Sam Barai, founder of New York-based Barai Capital Management LP, to get secret tips from Jiau. The two each paid her $5,000 a month for her information, Freeman said.
The jury was shown an undated photograph of the three men standing together, smiling broadly on a city street. Freeman said he had met Longueuil at a speed skating club in Boston and later befriended Barai.
Weitzman what happened to their friendship, Freeman said, “It ceased to exist.”
“For this, all three of us have been prosecuted for insider trading, all three of us have pleaded guilty,” he said. Freeman testified he recorded telephone conversations and also wore a body wire for the FBI when he spoke and met with Longueuil.
Freeman said he and Barai nicknamed Jiau “the Poohster,” based on the children’s book character Winnie the Pooh.
Jiau’s earnings data was “an exact match,” which he said helped give Boston-based Sonar Capital in Boston and then SAC Capital a competitive edge.
“It gave us the ability for us to know what the company was going to say before they said it,” Freeman testified, “It gave us a huge leg up.”
Weitzman asked Freeman to assess the quality of inside information he obtained from Jiau.
“It was of a different order altogether,” he said. “It was updated more frequently, far more accurate and far more detailed than any other source we ever developed.”
Freeman also described his relationship with Jiau, saying he and Barai met with her in California.
“Despite the fact that Ms. Jiau’s information was very, very accurate, she could also be very difficult to work with on a daily basis,” he said.
He said she’d often change and reschedule meetings and failed to return calls. He said he and Barai gave Jiau gifts, including iPhones when they were first introduced by Apple Inc., and gift certificates for restaurants and clothing that were returned or exchanged.
He said Jiau returned a $300 gift certificate from a women’s clothing store and asked that it be changed to a $300 gift certificate for the Cheesecake Factory, a chain restaurant.
Freeman said that after he and Barai gave Jiau an iPhone, she demanded more phones.
The jury was shown an Aug. 25, 2007, e-mail that Jiau sent Barai asking for the newest iPhone and adding, “if this connection is useful to you.”
The jury also saw a Nov. 13, 2007, e-mail in which Freeman asked his assistant at Sonar Capital to send Jiau a dozen live lobsters for Thanksgiving. “I know you hate her but can we do this?” Freeman said in the e-mail.
Annie Gillen, his assistant, replied, “Sure thing, I hope she gets sick from the lobsters,” adding a happy face emoticon.
“Me too,” Freeman answered, “but not dying, just suffering.”
Jiau never picked up the lobsters, Freeman said, triggering another spate of e-mails.
“Typical Winnie to let 12 lobsters die at FedEx, she has no heart,” Gillen wrote, adding an unhappy face emoticon.
Jiau then asked that another dozen lobsters be sent to her in time for Christmas, he said.
U.S. District Judge Jed Rakoff interrupted, asking Freeman if they were also paying Jiau $10,000 a month. The judge then said: “And yet you thought it was in poor taste that she asked for more gifts?”
“When these conversations happened, their tone was aggressive and nasty and I thought that was a little bit weird,” Freeman answered.
He said Jiau, who at the time worked for Taiwan Semiconductor Manufacturing Co., had sources at Santa Clara, California-based Nvidia, which makes graphics chips, and at Marvell, a Santa Clara-based maker of chips for personal computers and mobile phones. Jiau also worked briefly as an outside contractor for Nvidia, prosecutors said.
Freeman testified he never told SAC Capital superiors about his secret arrangement with Barai and Longueuil, saying that “SAC had compliance policies and we wouldn’t have been allowed to.”
Freeman said he, Barai and Longueuil used Jiau from 2006 until early 2009, when she stopped returning calls and e-mails. The jury saw an early 2009 e-mail from Barai, who wrote, “No teddy bear pooh, sucks.”
Mark Hyland, a lawyer for Sonar Capital and its founder Neil Druker, said last week that “any statement that Sonar Capital used insider trading as a business model is categorically false.”
Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC Capital, declined to comment. He said earlier that Freeman and Longueuil were both dismissed from SAC Capital in 2010 because of poor performance.
Jiau’s lawyer, Joanna Hendon, said last week that she intends to call Barai as a witness during defense testimony.
The case is U.S. v. Jiau, 11-CR-161, U.S. District Court, Southern District of New York (Manhattan).
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