Sweeping Federal Insider Trading Probe Yields Another Arrest

Federal authorities have arrested Fremont, Calif., resident Winifred Jiau Tuesday on charges related to her involvement in an insider trading scheme. Jiau has been charged with conspiring to commit securities fraud and engaging in securities fraud by selling material nonpublic information about publicly traded companies.

The investigation was conducted by the office of U.S. Attorney Preet Bharara, Southern District of New York. Between 2006 and December 2008, Jiau obtained inside information, including detailed financial earnings, about multiple publicly traded companies including Nvidia and Marvell, Bharara’s office discovered. Jiau sold that information to portfolio managers at hedge funds.

The hedge funds then traded stock based on the information provided by Jiau. In return, the hedge funds paid Jiau over US$200,000 over the two-year period. Payments were made through an expert networking firm that purported to provide “institutional money managers and analysts with market intelligence” through a “global advisory team of experts,” according to Bharara’s office.

Stiff Penalties

Jiau has been charged with one count of conspiracy to commit securities fraud (count one) and one count of securities fraud (count two). On the first count, Jiau faces a potential penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense; count two carries a maximum potential penalty of 20 years in prison and a maximum fine of $5 million.

One of the hedge funds netted profits of more than $820,000 from the trades in Marvell securities.

Council and chief public information officer for Bharara’s office, Ellen Davis, told the E-Commerce Times the office had no comment beyond its press release.

All Roads Lead to Primary Global Research

During the two-year period named by Bharara, Jiau was employed as a consultant by Primary Global Research, an expert-network firm in Mountain View, Calif.

“Winifred Jiau served as an expert consultant with Primary Global Research from September 2006 through December 2008, at which time the relationship was ended,” Marilyn Gerber, a spokesperson for Primary Global Research, told the E-Commerce Times. “The company has no further comment.”

Jiau also had a working relationship with Nvidia.

“She worked as a contractor, rather than an employee, and left about a year ago,” Robert Sherbin, head of corporate communications at Nvidia, told the E-Commerce Times.

Five Busted Earlier in December

Another set of arrests on December 16 resulted from investigations under the direction of Bharara’s office. Four employees from tech firms were arrested for insider trading, including James Fleishman, the VP of marketing from Primary Global Research.

The tech employees who were nabbed for insider trading had been employed at Dell, Advanced Micro Devices and Flextronics, a contract manufacturer for Apple that had early information on the production quantities of the iPhone. The secrets traded included advance information on earnings reports as well as information on emerging products.

The way Bharara’s office described the system of information trading is that Primary Global Research would recruit employees from tech firms and pay them for delivering non-public corporate data, primarily early views into quarterly earnings results, to the firm’s hedge fund clients. These employees would be paid to reveal inside information from their employers.

The four who were arrested on December 16 were collectively paid more than $400,000 merely to participate in phone calls with Primary Global Research clients.

The arrest of Jiau and the earlier arrests of the four tech company employees and Fleishman are part of a larger investigation run by Bharara’s office. The case was launched in coordination with President Obama’s Financial Fraud Enforcement Task Force. Bharara serves on the group as cochair of the Securities and Commodities Fraud Working Group.