June 8 (Bloomberg) -- A former SAC Capital Advisors LLP portfolio manager, testifying at an insider-trading trial, said that on a business trip he ingested a hallucinogenic mushroom that resulted in his wandering around the streets of San Francisco in his underwear.
Noah Freeman, 35, who pleaded guilty to securities fraud in February, is the first of three cooperating witnesses who the U.S. said will testify against Winifred Jiau, 43, a former Primary Global Research LLC consultant charged with conspiracy and securities fraud. She’s 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 and faces as long as 25 years in prison if convicted.
Freeman was asked yesterday about his drug history during cross-examination by David Luttinger, a lawyer for Jiau. Freeman said he smoked marijuana regularly from his senior year in high school until 2009 and said he took a hallucinogenic mushroom once while attending a conference in San Francisco in 2009.
“I was walking around looking for something to do,” Freeman said, adding that he’d bought the drug outside a concert hall. When he didn’t get an immediate reaction, he said he ate some more.
“‘Weren’t you running around the streets of San Francisco in your underwear?” asked Luttinger, who also asked Freeman why he hadn’t given authorities or hospital officials his real name when he was found wandering and disoriented.
“It was one of the worst experiences of my life,” Freeman said. “I was worried I was going to get in trouble with SAC.”
Luttinger closely questioned Freeman about the number of times he committed insider trading based on material, nonpublic information while at Sonar Capital.
“Approximately a dozen where I’m totally confident the information was material and nonpublic,” Freeman said.
“What about your time at SAC Capital?” Luttinger asked.
“Focusing on only the ones where there was no question of a gray area, I would say perhaps half a dozen,” Freeman said. “Again, my trading style was faster there, so I don’t remember quite as well.”
Luttinger pressed Freeman to pinpoint exactly where, in scores of electronic messages, instant electronic messages and secretly recorded calls of conversations, that Jiau had conveyed material, nonpublic information to him.
Freeman could only point to one instance in which Jiau provided Freeman with an Nvidia earnings number before it was publicly announced.
Freeman, who graduated from Harvard College in 1999, testified he worked at Sonar Capital from February 2005 until February 2008. He worked at SAC Capital from June 2008 to January 2010, when he was fired by SAC Capital, he said.
Jonathan Gasthalter, a spokesman for SAC Capital, said in an e-mailed statement, “Freeman’s testimony confirms what we said initially: his outrageous actions required active circumvention of our compliance policies and systems.”
Freeman, who said his contract at SAC Capital guaranteed him a minimum compensation of $1.3 million, testified yesterday that Jiau had “nailed it two quarters in a row” with data she provided in late 2006 and early 2007 about Nvidia Corp.
Jiau is also accused of passing tips to Donald Longueuil, a former SAC Capital fund manager, and Samir Barai, founder of New York-based Barai Capital Management LP, about Nvidia and Marvell Technology Group Ltd. Barai and Longueuil have pleaded guilty.
Freeman testified the tips allowed Sonar Capital to make $20 million to $30 million.
Luttinger asked Freeman if he, Longueuil and Barai had numerous other sources of inside information about semiconductor makers, including “wafer data,” from individuals other than Jiau.
Freeman identified five people who provided him such data. He said the three portfolio managers had nicknames for these sources, calling one man “Cha-Ching,” in a reference to a cash register’s sound. Another source was named “10-K” because his information was long and complicated like a company’s 10-K filing, Freeman said.
Freeman described how the three men had telephone conference calls or used the Skype Internet phone service to speak to Jiau to get tips, which they referred to as a “data dump” or a “smack down.”
“Was it your experience that people working in companies based in Taiwan were looser with their financial information and sales data?” Luttinger asked.
“Yes, they were,” Freeman said.
Luttinger asked Freeman if he ever paid for prostitutes for his sources, citing a report by the Federal Bureau of Investigation describing an incident at a karaoke bar in Taiwan called the Red Horse.
“Didn’t you purchase a prostitute?” Luttinger asked.
“No,” Freeman said. “The conversation was conducted in Chinese. I collected a large bill and I was never sure what happened.”
He said the bill totaled “a couple of thousand dollars,” and he submitted it to his assistant at Sonar Capital who “sorted it out.”
Mark Hyland, a lawyer representing Sonar Capital and its founder, Neil Druker, didn’t immediately return a voice-mail message seeking comment yesterday. Freeman’s lawyer, Benjamin Rosenberg of Dechert LLP, didn’t immediately return a call seeking comment.
Last week, Hyland disputed Freeman’s testimony, saying that “any statement that Sonar Capital used insider trading as a business model is categorically false.”
Primary Global is an expert networking firm that matched portfolio managers with specialists in public companies from a database of consultants. At least 13 people have been charged in the case and nine have pleaded guilty. One of those was another Primary Global employee, Don Ching Trang Chu, who pleaded guilty yesterday in the same courthouse.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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