Monday, January 31, 2011

FBI exploited trader's hearing impairment to catch alleged insider trading

From Business Insider:

Samir Barai might as well have just handed over the evidence the FBI needs for their case against him in person.

Barai is severely hearing-impaired, so much so that he records all of his calls and uses high-tech sound enhancers everyday. Imagine the smiles on the faces of the two FBI agents who raided Barai Capital in November when they found that stash.

The FBI seems to have or know of a call on which Barai and an analyst (probably Jason Pflaum, who's cooperating against him) allegedly received information ahead of Marvell's earnings and then traded on it, earning over $820,000.

With all that hard evidence that potentially implicates him, of course Barai is now part of the main focus of the FBI's case. He's named a "co-conspirator," the first manager to be given that name yet.

But Barai is a small fish. He only manages ~$100 million.

The other people named in the case are pretty high profile. But they are not named co-conspirators (as far as we know).

So does this mean that the insider trading scandal hinges on Barai? And thus, evidence he kept because he is basically handicapped?

That's like a cop catching a bankrobber in a wheelchair and fingerprinting the wheelchair to find out who's pushing him around, and discovering that they might be members of the mafia.

The FBI's wide-reaching scandal could be awesome and do a good job of restoring confidence in the government's ability to catch the people who defraud the market (something the government regulatory bodies desperately need after Madoff) -- if only they hadn't caught their "big guy" because of his handicap.