Instant messages show insider tips to fund-witness

By Grant McCool

NEW YORK, (Reuters) – A series of instant messages showed a Taiwan-born technology consultant on trial for insider trading gave precise earnings tips to a hedge fund manager about chipmaker Marvell in May 2008, a former research analyst testified Monday.

Consultant Winifred Jiau is the only person so far out of more than a dozen charged in the so-called expert network branch of a broad U.S. government probe to go on trial. She is accused of leaking secrets about chipmakers Marvell Technology Group Ltdand Nvidia Corpfrom 2006 to 2008 in exchange for hundreds of thousands of dollars.

Testifying for the prosecution, Jason Pflaum, a former research analyst at hedge fund Barai Capital Management, said Jiau told his boss, Samir Barai, Marvell earnings would be $804 million and its gross margins 51.6 percent compared with a Wall Street forecast of 49 percent. In an earlier call, Jiau had given the gross margin as 53 percent, the jury heard.

Pflaum explained in Manhattan federal court that Barai has a hearing impairment and that he would listen in to calls and relay by instant message what she was saying to Barai.

While Pflaum was on the witness stand, prosecutor David Leibowitz displayed the instant messages to the jury on a large screen in the courtroom — shorthand transcripts of two calls between Jiau and Barai.

One of the exchanges was:

“sambarai12: can u hear

“jppflaum: i’m good

“sambarai12: wtf

“jppflaum: 804m

“jppflaum: revs”

During his testimony, Pflaum was asked by Leibowitz to comment on the significance of information provided by Jiau.

“If you come to the conclusion that 53 percent is a sustainable level, that’s extremely important to the company’s earnings potential and as a result extremely important to the company’s investors,” Pflaum, who has pleaded guilty in the case, told the jury.

On May 29, 2008, a day after the second call between Barai and Jiau, Marvell announced net revenues of $804 million and gross margins of 52 percent.

Pflaum will be cross-examined later by one of Jiau’s lawyers.

Barai pleaded guilty to criminal charges May 27 and admitted conspiring with Jiau, one-time consultant with Primary Global Research expert networking firm based in California. He is among 10 who have pleaded guilty out of more than a dozen people prosecutors have charged in the investigation of such firms.

They are called expert network firms because they match investment managers with public companies. Prosecutors say the defendants abused their fiduciary duties and traded or helped others trade illegally on corporate secrets such as earnings and mergers before public announcements.

The case is USA v Winifred Jiau et al, U.S. District Court for the Southern District of New York, No. 11-00161. (Reporting by Grant McCool; editing by Andre Grenon)