California woman arrested in insider trading case

NEW YORK Wed Dec 29, 2010 6:05pm EST

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NEW YORK (Reuters) - U.S. prosecutors on Wednesday charged a California woman with leaking secrets about technology companies to two hedge funds in exchange for illegal payments, expanding their probe into insider trading.

Winifred Jiau is at least the sixth person arrested since U.S. authorities raided three hedge funds last month, ratcheting up the pressure on the industry in their more than two-year-old probe.

Primary Global Research LLC, an "expert network" firm that linked investors such as hedge funds with industry experts, in a statement said it used Jiau as a consultant from September 2006 to December 2008, when "the relationship was ended."

The period roughly corresponds with the time frame in which prosecutors said Jiau's alleged illegal activity took place.

Jiau's lawyer was not immediately available to comment.

Prosecutors accused Jiau, 43, of selling inside information about publicly traded companies including computer chipmakers Marvell Technology Group Ltd and Nvidia Corp to hedge funds, including the founder of a New York fund that prosecutors did not identify.

They said the information was sold through an expert network firm, in exchange for more than $200,000 of payments funneled through that firm, also not identified.

Nvidia spokesman Hector Marinez said Jiau had been a contractor at Nvidia before leaving about a year ago. Marvell did not return a request for comment.

Hedge funds pay expert network firms for access to experts who are supposed to offer insights on industry trends.

DETAINED

Jiau was charged with one count of securities fraud and one count of conspiracy, and could face 20 years in prison on the securities fraud charge, according to U.S. Attorney Preet Bharara for the Southern District of New York.

The defendant was arrested at her Fremont, California, home on Tuesday, and ordered detained by U.S. Magistrate Judge Nandor Vadas at a hearing Wednesday in San Francisco.

A bail hearing is set for January 3. It is unclear whether Jiau's case will eventually be transferred to New York.

Jiau's arrest follows criminal charges on December 16 against three technology company executives who allegedly sold secrets about companies including Apple Inc and chipmaker Advanced Micro Devices Inc.

Also charged on that date was James Fleishman, a salesman at Primary Global, which had used the executives as consultants.

Primary Global has said it put Fleishman on leave and ended ties to the three executives arrested earlier this month.

In a separate hearing in San Jose, California, U.S. Magistrate Judge Timothy Bommer allowed Fleishman to remain free on bond, and directed him to appear in Manhattan federal court on January 4.

ACCURATE INFORMATION SAID TO BE LEAKED

Prosecutors said payments to Jiau went through a Mountain View, California-based expert network firm that purported to provide "institutional money managers and analysts with market intelligence" through a "global advisory team of experts."

Primary Global uses that language in its marketing materials, and is based in Mountain View.

Marvell and Nvidia both have U.S. headquarters in nearby Santa Clara, California, though Marvell is based in Bermuda.

Prosecutors said Jiau provided two portfolio managers of separate hedge funds with accurate information about Marvell's results for the quarter ended May 3, 2008, leading to more than $820,000 of trading profits for the New York fund.

They also said Jiau on August 8, 2008 told the portfolio managers that Nvidia would post revenue of "892" for its 2009 fiscal second quarter and announce a stock buyback.

A few days later, Nvidia posted revenue of $892.7 million and added $1 billion to its buyback program, prosecutors said.

While the New York fund was not identified, FBI agents last month raided Level Global Investors in New York as part of the hedge fund probe, as well as Connecticut-based Diamondback Capital management and Boston-based Loch Capital Management.

A Level Global spokesman did not immediately return a call for comment.

The case is U.S. v. Jiau, U.S. District Court, Southern District of New York, No. 10-mag-02900.

(Reporting by Jonathan Stempel and Emily Chasan in New York; Additional reporting by Tom Hals in Wilmington, Delaware; Dan Levine in San Jose, California; and Noel Randewich in San Francisco; Editing by Steve Orlofsky, Dave Zimmerman and Bernard Orr)

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