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Insider-Trading Probe Continues To Grow

The hedge fund industry must be shuddering as Federal authorities in the U.S. release more details of its widening insider-trading investigation.

The latest complaint filed by prosecutors provides some unflattering excerpts of telephone conversations between a California-based technology consultant, Winifred Jiau, and two unnamed hedge funds.

According to prosecutors, Jiau was paid over $200,000 between September 2006 and December 2008 to provide the details of quarterly earnings reports before their public release.

During two telephone calls in May 2008, Jiau was recorded telling one of the hedge fund managers the exact details of Marvell Technology Group’s quarterly revenue, gross margin and earnings per share. For some inexplicable reason, one of the hedge funds kept digital recordings of their phone calls with Jiau that are now being used as evidence in the investigation.

Jiau has been charged with conspiracy and securities fraud. She stands accused of leaking inside information from Marvell as well as Nvidia Corporation to the hedge funds.

Investigators say one of the funds netted a profit of more than $820,000 by trading Marvell’s stock within the weeks immediately prior and after the company’s earnings report.

The latest arrest brings even further unwelcome attention to the hedge fund industry, which has managed to avoid regulatory oversight for decades. The FBI raided the offices of three hedge funds last month as part of its ongoing probe into insider trading.

The investigation has also shed light on the so-called expert-networking firms that allegedly conspired to provide confidential information to clients that included hedge funds.

According to various reports, Jiau, 43, had worked for Nvidia as a contractor for an unspecified period. A graduate of National Taiwan University with a Master’s degree from Stanford University, she had also been a consultant with one of the firms at the center of the investigation called Primary Global Research.

Four other consultants from the same firm had already been arrested; they include James Fleishman, Mark Anthony Longoria, Manosha Karunatilaka, Daniel Devore and Don Ching Trang Chu.

The recent slew of insider-trading cases stem from last year’s prosecution of the Galleon Group hedge fund founder Raj Rajaratnam. The Galleon case led to charges against 23 traders, which included another former hedge fund manager, Richard Choo-Beng Lee. In return for a more lenient sentence, Choo has reportedly been co-operating with authorities, and it was his relationship with Ching that ultimately led investigators to focus on Primary Global Research.