More On The SAC Insider Trading Case

Yesterday it was revealed that a couple of former SAC Capital employees were arrested on insider trading charges, and more is coming to light in the case.

Noah Freeman and Donald Longueuil, from SAC, as well as Samir Barai, the founder of Barai Capital Management, and Jason Pflaum, were charged with insider trading as part of a national crackdown on insider trading. Freeman and Pflaum have agreed to cooperate with investigators.

"They took the concept of social networking and turned it into a criminal enterprise,” Manhattan U.S. Attorney Preet Bharara said yesterday at a press conference.

“This is part of the unrelenting attack of the government against perceived abuses on Wall Street,” Anthony Sabino, a professor at St. John's University School of Law told Bloomberg yesterday.

SAC responded back with a statement distancing themselves from the former employees, and condemning their actions. “We are outraged by the alleged actions of two former employees, which required active circumvention of our compliance policies and are egregious violations of our ethical standards,” SAC Capital said yesterday in a statement. “The government alleges that their improper conduct together began at their prior firms in 2006 and continued after they joined SAC in mid-2008.”

SAC has been a major target of the insider trading case, when it received subpoenas back in December. It is not yet known if the government is going after SAC Capital head Stevie Cohen at this point.

The SEC sued the four former hedge funders, accusing them of earning $30 million on trades of companies such as Advanced Micro Devices Inc. (NYSE: AMD), Marvell Technology Group Ltd. (NASDAQ: MRVL), Western Digital Corp. (NYSE: WDC), and Seagate Technology Plc. (NASDAQ: STX).

Barai figured that by using Mosaic Theory, the investigators would not be able to accuse them of anything. Mosaic Theory allows an analyst to place a value on a security using an array of sources, both public and nonpublic.

“The more I think about it -- just not enough clues to hold something on us,” Barai wrote to Pflaum in a BlackBerry message, according to the complaint. “We use all mosaic theory,” Barai supposedly wrote. “So we're ok.”

“Shred as much as u can,” Barai said.

“Chopped it up, chopped up everything,” Longueuil wrote in a text to Freeman.