Forum: Citygroup » Citigroup Hedge Fund Reaped Inside Information, Prosecutors Say

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Citigroup Hedge Fund Reaped Inside Information, Prosecutors Say
By Donal Griffin - Feb 9, 2011 7:25 PM GMT+0100

A Citigroup Inc. hedge fund made more than $450,000 in 2006 and 2007 trading in securities of Fairchild Semiconductor International Inc. after obtaining inside information about the company, U.S. prosecutors said.

The fund, described as “Hedge Fund A,” in a criminal complaint filed in federal court in Manhattan, was identified in a parallel lawsuit by the U.S. Securities and Exchange Commission as Citigroup’s Tribeca Global Management LLC. This fund managed about $2 billion before the bank began to close it in September 2007.

The court filings, stemming from a nationwide federal probe of hedge funds, technology companies and so-called expert networking firms, accuse onetime Tribeca portfolio manager Samir Barai along with a former manager at SAC Capital Advisors LP of illegal insider trading. Barai, 38, surrendered to authorities yesterday. Neither Citigroup nor Tribeca was accused of wrongdoing.

“Barai obtained material, nonpublic information provided to him in breach of fiduciary and other duties or trust and confidence,” according to the criminal complaint. Manhattan U.S. Attorney Preet Bharara announced the charges against Barai, who worked at Tribeca in 2006 and 2007 before starting his own hedge fund.

The SEC is seeking to force Barai, his Barai Capital Management LP firm and nine other individuals to repay “ill- gotten gains and the illicit trading profits” made from an alleged insider trading scheme surrounding several technology companies. His attorney, Evan Barr of Steptoe & Johnson LLP in New York City, declined to comment.

Citigroup Cooperating

“We are fully cooperating with the authorities on this matter,” Danielle Romero-Apsilos, a Citigroup spokeswoman, said in an e-mailed statement.

When he was at Tribeca, Barai received information from an “insider” at South Portland, Maine-based chip maker Fairchild, according to the SEC. This individual, described as the “Fairchild Source” by prosecutors, was allegedly a product manager who had given Barai nonpublic details about the firm including quarterly revenue information.

Tribeca “earned net profits of over approximately $450,000 as a result of its trading activity in Fairchild,” prosecutors said in the criminal complaint, calling it “Hedge Fund A.”

The U.S. said the conspiracy extended into 2010, after Barai had left Citigroup. Barai founded his hedge fund in March 2008 and the firm had about $100 million in assets, according to the SEC. He obtained material information from “insiders” at firms such as Fairchild and Advanced Micro Devices Inc. and then traded on the information for Barai Capital, the SEC said.

Inside Information

After Barai set up Barai Capital, the insider gave him information about Fairchild’s sales, profit margins and inventory, and told him how much revenue the company collected from customers including Dell Inc., Samsung Electronics Co. Ltd. and Nokia Oyj, the SEC alleges.

The Fairchild Source was paid about $48,000 between October 2006 and October 2009 by “the hedge funds at which Samir Barai” worked, according to the criminal complaint.

Patti Olson, a Fairchild spokeswoman, said the firm is cooperating with the investigation.

Donald Longueuil, a former junior portfolio manager at SAC, was also charged with securities fraud, conspiracy to commit securities fraud and wire fraud as well as obstruction of justice. Longueuil’s attorney, Craig Carpenito of New York City- based Alston & Bird LLP, declined to comment.

SAC Statement

SAC was founded in by Steve Cohen in 1992 and is based in Stamford, Connecticut. It has not been charged. A spokesman for the firm, Jonathan Gasthalter, referred to a statement issued yesterday, which said SAC was “outraged” by Longueuil’s alleged actions and was cooperating with the investigation.

Citigroup, the third-largest U.S. bank, set up the Tribeca fund in 2004 with an initial goal of attracting $20 billion. It hired Tanya Styblo Beder to run the fund. She left in September 2006. Dean Barr, who took over after her departure, resigned in April 2007. The bank announced in September 2007 that it would shut Tribeca. Ex-Chief Investment Officer Oliver Dobbs, who oversaw the fund when Barr departed, left in February 2008.

Dobbs declined to comment. Styblo Beder and Barr didn’t return phone calls.

To contact the reporter on this story: Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: Rick Green in New York at rgreen18@bloomberg.net.
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