They Were Best of Friends, Until the Feds Showed Up

By STEVE EDER, MICHAEL ROTHFELD And JENNY STRASBURG

Donald Longueuil and Noah Freeman were tight. They worked together as money managers at giant hedge fund SAC Capital Advisors. They skated together and vacationed together. And, prosecutors say, they traded on inside information together.

The two men had been there for each other, friends say, through the tough times—including a failed romance—and the good. Mr. Longueuil was the best man at Mr. Freeman's 2009 wedding, and Mr. Freeman was to return the favor this month as a groomsman when Mr. Longueuil got married.

Instead of standing with Mr. Longueuil, though, Mr. Freeman took his friend down.

The 35-year-old Mr. Freeman turned against his buddy, wearing a wire for the government during a crucial phase in a sprawling, three-year investigation that authorities say could eclipse in scope any previous insider-trading case.

After Mr. Freeman himself was caught trading on inside information, he agreed to secretly record Mr. Longueuil, 34. He caught him saying he had ripped apart his computer drives with pliers and dumped the pieces in garbage trucks around New York, prosecutors say. The recordings led to obstruction-of-justice charges against Mr. Longueuil: Prosecutors say the drives held evidence of his insider trading.

View Full Image

Bloomberg News

Donald Longueuil, with a lawyer, covered his face after leaving federal court in New York on Feb. 8.

The broken bond between the two men shows how the government's insider-trading investigation is attempting to splinter the tight-knit circles of traders that share illegal investment data, prosecutors allege, in an environment where friendship is key.

The two traders, along with a third man criminally charged last week, Samir Barai, formed a "triangle of trust," Manhattan U.S. Attorney Preet Bharara said at a news conference, sharing information from multiple sources with each other.

Lawyers for Messrs. Barai, Longueuil and Freeman declined to comment. SAC, the hedge-fund firm, hasn't been accused of wrongdoing; a spokesman says the firm is "outraged" and cooperating with authorities.

Interviews with roughly three dozen of the defendants' friends, relatives, colleagues and teammates, as well as an examination of athletic records, photos, transcripts and civil and criminal complaints filed in a New York federal court, reveal the depth of the relationship among them and how their bonds were broken by the insider-trading case.

The ties between Messrs. Longueuil and Freeman were particularly deep. They met through a shared interest in ice skating, and both competed with the Bay State Speedskating Club in Massachusetts. They skied together in Utah and New Hampshire, friends say.

The women in their lives—Mr. Longueuil's fiancée, P. Mackenzie Mudgett, and Mr. Freeman's eventual wife, Hannah England—were friends as well, with a history of their own reaching back to Princeton University's rowing team, friends say.

Network of Trust

Big insider-trading case breaks business and family ties

View Full Image

After graduating from Harvard University, Mr. Freeman worked as a consultant, entering the hedge-fund world in Boston in 2001 as a technology analyst.

Mr. Longueuil graduated from Northeastern University and, as his bid to make the 2002 U.S. Olympic Team in Salt Lake City as a speedskater fell short, he began making a name for himself as a wireless analyst.

It was around this time that the two met. Over the next few years, the two men grew close, staying in touch as Mr. Longueuil moved to Connecticut in 2004 to work for Empire Capital, a hedge fund where Mr. Freeman helped him land a job, associates say.

When Mr. Freeman's then-fiancée broke their engagement, leaving him distraught, Mr. Longueuil helped pick up the pieces, a person familiar with the situation said.

Mr. Freeman later told co-workers he couldn't have made it through the time without him. "I needed Don to get me out of bed this morning," he said at one point, according to the person familiar with the situation.

In 2006, Mr. Freeman began dating Ms. England. The two couples' social activities often centered around sports, friends say. Mr. Freeman and Ms. England competed in triathlons together. Mr. Longueuil and Ms. Mudgett rode on the same cycling team in New York.

Around this time, Messrs. Freeman and Longueuil—along with the third man, Mr. Barai, then of Citigroup Inc.'s Tribeca Global Management hedge-fund unit—began sharing, and trading on, inside information, according to the federal criminal and civil complaints filed last week.

Messrs. Freeman and Longueuil continued trading on inside information in 2008, prosecutors say, after joining SAC Capital.

Mr. Freeman traded out of the Boston office, and Mr. Longueuil worked in New York for SAC's CR Intrinsic division.

Mr. Barai, 39, meanwhile, left Tribeca when it shut down and started his own hedge fund. One of his first hires was an analyst who, according to last week's criminal complaint, would eventually incriminate him: Jason Pflaum. The two men knew each other through Wall Street ties, according to associates.

Launching Barai Capital Management together created a bond between Messrs. Barai and Pflaum, people who know them say, because the small firm had few employees involved in investment decisions.

Prosecutors say Mr. Barai also put Mr. Pflaum in touch with contacts to obtain insider information, including some he had allegedly used while at Citigroup.

A Citigroup spokeswoman said the firm is cooperating with the investigation.

Mr. Pflaum listened in to conference calls during which one of the contacts, a California tech-company contractor named Winifred Jiau, allegedly gave Mr. Barai and Mr. Freeman information on chip maker Marvell Technology Group Ltd., according to the complaints filed last week.

The government in December criminally charged Ms. Jiau with providing inside information about publicly traded companies to hedge-fund managers.

Lawyers for Mr. Pflaum and Ms. Jiau declined to comment.

There is no suggestion Marvell had knowledge of the alleged wrongdoing. The company said it is cooperating with authorities.

In May 2008, Mr. Freeman passed along nonpublic information about Marvell's quarterly earnings from Ms. Jiau to Mr. Longueuil, prosecutors say in court filings.

Federal authorities say Mr. Barai's firm made $820,000 trading on the information, and that Mr. Longueuil's firm profited by nearly $1.1 million.

Besides participating in conference calls with Mr. Freeman, people who know Mr. Barai say he had dinner with Mr. Longueuil in New York about every other month, sharing pasta and wine at a low-key Manhattan restaurant as they discussed tech-investment ideas and relationships, according to a person who knows them.

The men's lives seemed to be advancing along the same trajectory, marked by success in their careers and their personal lives.

Mr. Barai was highlighted in a hedge-fund trade publication about overcoming adversity related to his lifelong hearing impairment.

Mr. Longueuil bought a 1,300-square-foot, $1.7 million condominium on the 10th floor of an upscale building on Manhattan's East Side, and Ms. Mudgett moved in, according to property and voting records.

And Mr. Freeman obtained a guaranteed two-year, $2 million contract from SAC plus 20% of profits generated in his portfolio, say people familiar with the matter.

He stopped in the middle of the St. Croix half-Ironman competition in 2008 and held up a sign asking Ms. England to marry him, according to an article about her athletic feats.

Ms. England didn't respond to requests for comment.

Messrs. Freeman and Longueuil also displayed a hard competitive edge, people who know them say.

Members of "Team Psycho," a triathlon team Mr. Freeman practiced with, rejected him from becoming a member because he didn't always support others with what the club describes as positive "psycho karma," according to a club member.

Mr. Longueuil is health-conscious and maintained a strict diet, and complained repeatedly about tenants who smoked on their balcony a floor below him, according to people familiar with the matter.

In early 2008, the Federal Bureau of Investigation and prosecutors in Manhattan also began investigating Primary Global Research LLC, an "expert-network" firm—a company that arranges conversations between investment firms and employees at public companies who freelance as consultants.

Prosecutors say Mr. Barai had been using Primary Global to obtain investment information this way.

Five Primary Global consultants and three employees have been charged in the government's case. The company, which hasn't been accused of wrongdoing, declined to comment.

As part of the probe, prosecutors had obtained wiretaps on the phones connected to Primary Global and its consultants, including an employee of Advanced Micro Devices Inc., a semiconductor company.

Mr. Pflaum received insider information on AMD from the employee in 2008 and 2009, according to prosecutors. AMD, which isn't accused of wrongdoing, declined to comment.

Late last year, Mr. Pflaum pleaded guilty to securities fraud and conspiracy.

In August 2009, Mr. Freeman and Ms. England were married in a wedding in Southport, Maine. Mr. Longueuil, wearing a blue blazer, light blue tie and khakis matching the groom, stood behind Mr. Freeman, smiling as the bride walked down the aisle. The festivities, according to photos of the event, included a rehearsal dinner at Mr. Freeman's mother's home and a run for the athletes in attendance.

A few months later, Mr. Longueuil and Ms. Mudgett celebrated their own engagement on a ski vacation to Vail, according to pictures of the trip. Mr. Longueuil asked Mr. Freeman to stand up at his wedding, which was planned for Feb. 26 of this year.

Soon their worlds began crashing down. Messrs. Freeman and Longueuil each were fired by SAC—Mr. Freeman in January 2010, and Mr. Longueuil in June 2010—"for poor performance," according to a spokesman. By the fall last year, prosecutors and the FBI were ramping up their insider-trading investigation.

The FBI and the Manhattan U.S. Attorney's office declined to comment.

Mr. Barai's employee, Mr. Pflaum—who had been approached by the FBI and had begun working with the government—supplied the FBI in November with computer files from his desktop and laptop at Mr. Barai's firm, as well as audio recordings that his boss had allegedly made of his conversations with Ms. Jiau, according to the criminal complaint and people familiar with the matter.

A few days later, on the evening of Nov. 19, The Wall Street Journal reported that federal prosecutors were engaged in a wide-ranging probe of insider-trading that focused on Primary Global, among others.

According to the criminal complaint last week, this appears to be the first time Mr. Barai became aware of the investigation. He sent Mr. Pflaum a BlackBerry message that he had read the article 10 times, and told him to delete his BlackBerry messages, according to the complaint.

Coached by the government, Mr. Pflaum the following morning opened the door for his boss to potentially incriminate himself, writing: "Yo. Deleted them. didn't sleep so well last night. What else do you think we need to do?"

"U just go into office," Mr. Barai responded, according to a transcript in the government's complaint. "Shred as much as u can."

Mr. Pflaum asked more questions. "[W]ho else do we talk to there...that might be questionable?" he messaged Mr. Barai, referring to consultants from Primary Global.

After Mr. Pflaum mentioned the AMD employee, Mr. Barai wrote, "I would delete his notes [f]or sure."

"I think already deleted them," Mr. Pflaum responded.

"Good," said Mr. Barai.

A day later, Mr. Barai told Mr. Pflaum to leave his laptop computer with his apartment doorman so Mr. Barai could pick it up and "do a dept of defense delete" on its contents, according to last week's government complaint.

Mr. Barai took the laptop and never returned it. But by then the FBI had already viewed its contents.

The next day, on Nov. 22, his fund was raided by the FBI. He later was charged with securities fraud and obstruction of justice.

Meantime, Mr. Longueuil also panicked after reading the Journal article, prosecutors say. Using two pairs of pliers, he destroyed the computer hard drives where the government said he kept inside information, according to last week's complaint.

At 2 a.m., a few hours after the Journal article was published, Mr. Longueuil left his New York apartment with another person, according to the complaint against him. He walked 20 blocks and dumped mangled pieces of computer drives in four separate garbage trucks, according to the complaint.

The person who accompanied him was his fiancée, Ms. Mudgett, people familiar with the situation say.

"The events of last week have been personally devastating for me and my family," Ms. Mudgett said in a statement through her lawyer, Suzanne Jaffe Bloom, a partner at Dewey & LeBoeuf LLP. Ms. Mudgett hasn't been charged with wrongdoing.

Mr. Freeman, like Mr. Pflaum, agreed to cooperate with the investigation. In late December, Mr. Freeman got outfitted with a concealed recording device by the FBI and visited Mr. Longueuil at his apartment.

During their meeting, on Monday Dec. 20, Mr. Freeman tried at least four times to get his friend to admit he traded on inside tips, according to transcripts: "We both did, didn't we?" Mr. Freeman asked, according to the transcripts.

"Yeah," Mr. Longueuil said.

Mr. Freeman later asked Mr. Longueuil if "it could be a problem" if Ms. Jiau described to the FBI the information she gave them, the government's complaint says.

Mr. Longueuil said: "I guess, but do, do they have proof that she gave it to us?"

Prosecutors say Mr. Longueuil's statements in the recording have provided them with evidence to charge him with obstruction of justice.

On Feb. 7, Mr. Freeman pleaded guilty to securities fraud and conspiracy. The following day, authorities arrested Mr. Longueuil at his Manhattan apartment at about 5:30 a.m.

At Mr. Freeman's plea hearing, prosecutors and a judge said Mr. Freeman could travel in coming months to Puerto Rico and the U.S. Virgin Islands, where he plans to attend triathlons with his wife, including the same race in St. Croix where Mr. Freeman proposed marriage three years ago.

As he made those plans, Mr. Longueuil and Ms. Mudgett changed theirs. They said this week they were postponing their wedding.

Write to Steve Eder at steve.eder@wsj.com, Michael Rothfeld at michael.rothfeld@wsj.com and Jenny Strasburg at jenny.strasburg@wsj.com