8 February 2011

Screw Yourself by Destroying Digital Evidence

http://newyork.fbi.gov/pressrel/pressrel11/nyfo020811.htm

For Immediate Release
February 8, 2011 FBI New York
Contact: Jim Margolin
(212) 384-2720

Full Remarks as Prepared for Delivery by Assistant Director in Charge Janice K. Fedarcyk for Press Conference Regarding Insider Trading Charges Against Three Hedge Fund Portfolio Managers and One Analyst

The complaint unsealed this morning contains not only a narrative of blatant trafficking in inside information, it also provides the script of a conspiracy to destroy evidence once the defendants became aware the FBI was closing in.

Sam Barai, Donald Longueuil, Jason Pflaum, Noah Freeman, and others engaged in a multi-year conspiracy to purchase, obtain, and trade on material nonpublic information—an insider trading conspiracy that resulted in aggregate trading profits in the millions of dollars.

The evidence in this case gives a clear picture of the cynicism that underlies the so-called “research” upon which these defendants made trading decisions.

Paying insiders for quarterly earnings data before it’s announced isn’t “research” in any conventional—or legal—sense. It’s cheating.

Perhaps the most brazen conduct detailed in the complaint deals were the efforts of Barai and Longueuil to cover their tracks immediately after the November 19 news accounts of the FBI’s investigation.

Communicating with an FBI cooperator via Blackberry Messenger, Barai told him, “Delete your BBM chatter.” When the cooperator asked the next day, “What else do you think we need to do?” Barai responded, “I think you just go into office. Shred as much as you can. Put all your data files onto an encrypted drive.” Barai told the cooperator to delete all e-mails from two other participants in the insider trading scheme, and said, “I deleted mine.”

Two days after the initial news reports of the purportedly wide-ranging investigation, Barai arranged to pick up the cooperator’s laptop computer so he could “encrypt it and do a Department of Defense delete so it cannot be undeleted.”

Longueuil’s efforts to destroy evidence were no less blatant. In his effort to destroy evidence of one crime, he unwittingly left a trove of evidence of another: obstruction.

Unbeknownst to Longueuil, when he was describing how he mutilated and disposed of a flash drive containing incriminating evidence of insider trading, the person he was talking to was an FBI cooperator recording the conversation. Longueuil told the cooperator, “The night the Wall Street Journal article came out, I pressed the eject button and everything’s [expletive] gone.”

Longueuil described in detail how he destroyed a flash drive and two external computer drives. He described putting the pieces in four separate plastic bags, and at 2:00 a.m. going for “a twenty block walk around the city” and throwing them in four different garbage trucks.

On this account, Longueuil certainly seems to have been scrupulously if incriminatingly truthful: video surveillance corroborates his own story of the clandestine late-night disposal of evidence.

The evidence laid out in the complaint is largely the defendants’ own words. For all their presumed sophistication, they lacked a mobster’s better-honed instincts for conversational discretion. That was to our great advantage.

The charges and pleas announced today mark neither the beginning nor the end of the FBI’s investigation. We anticipate our investigation will continue for some time, and result in additional arrests.

Thanks, as always, to Preet Bharara, Boyd Johnson, Rich Zabel, and Chris Garcia; and to the Assistant U.S. Attorneys prosecuting this case, Avi Weitzman, David Leibowitz, and Andrew Michaelson.

Thanks to Rob Khuzami and the Securities and Exchange Commission.

And congratulations to FBI case agent B.J. Kang for his continued outstanding work.