A U.S. investigation into allegations of insider trading in the $1.9 trillion hedge fund industry for the first time ensnared two former employees of billionaire trader Steven A. Cohen's SAC Capital Advisors.

Two of four people charged on Tuesday with insider trading worked for Cohen's $12 billion Stamford, Connecticut-based hedge fund during the period that U.S. authorities allege the men received confidential corporate information, according to a person familiar with the investigation but not authorized to speak publicly.

One of the former SAC Capital employees, Noah Freeman, has agreed to plead guilty and is cooperating with investigation, according to prosecutors. The other former SAC Capital employee, Donald Longueuil, was arrested Tuesday morning at his Manhattan home, on charges of conspiracy and obstruction of justice.

The charges against Freeman, Longueuil and two other people were announced by federal prosecutors, who are investigating ties between hedge funds and consultants for so-called expert networking firms -- businesses that match hedge funds seeking information with industry consultants.

The other two people charged by federal prosecutors are hedge fund manager Samir Barai and an analyst who worked at Barai's hedge fund, Jason Pflaum.

Barai, a former Citigroup hedge fund manager who left to launch Barai Capital Management, surrendered to federal authorities in Manhattan early Tuesday morning. Pflaum has agreed to plead guilty and like Freeman is cooperating with the investigation.


SAC itself was not charged with any wrongdoing. A spokesman for Cohen said the high profile hedge fund manager was outraged by the alleged activities.

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, said SAC Capital spokesman Jonathan Gasthalter.

The criminal complaint, unsealed by prosecutors in Manhattan, paints a picture of all four hedge fund employees obtaining and sometimes sharing confidential information provided by consultants, some of whom worked for California expert network firm Primary Global Research.

In a related action, the Securities and Exchange Commission filed civil securities fraud charges against the defendants.

In court papers, neither prosecutors nor regulators identified SAC Capital or the other hedge funds where the people charged Tuesday allegedly engaged in wrongful activity. But people familiar with the investigation confirmed the identities of some of funds where the men had worked.

In the case of Freeman, he worked in SAC's Boston office from June 2008 to until early 2010. Longueuil, meanwhile, worked in an SAC Capital office in New York from July 2008 to June 2010, according to publicly available records on the Internet and two people familiar with the men's work history.

Prior to joining SAC Capital, Freeman was a tech analyst with Boston-based hedge fund Sonar Capital, which is in the same building as SAC Capital's Boston office.


Prosecutors alleged Freeman received inside information while working at two hedge funds. People familiar with Freeman's career and publicly available information on the Internet match those time periods to his tenure first at Sonar and later SAC Capital.

After leaving SAC, Freeman became a teacher at the Winsor School, an exclusive school for girls in Boston.

Tuesday's charges mark the expansion of the probe beyond expert networking firm consultants and employees to hedge fund employees who allegedly were recipients of secret tips on technology stocks.

Barai launched his fund in 2008. The fund, which focuses on technology and media companies, is in the process of closing.

Barai's fund was one of four raided by federal agents late last year when the trading probe was heating up. The raids shocked the hedge fund world, and were followed by dozens of subpoenas to hedge funds and mutual funds, including SAC Capital, that did business with various expert network firms and consultants.

Barai was charged with securities fraud, conspiracy and obstruction of justice, according to the court documents. He is accused of engaging in insider trading involving shares of Marvell Technology Group Ltd and Fairchild Semiconductor International Inc.

Ben Rosenberg, a lawyer for Freeman, did not immediately return a call requesting comment. Attorneys for the other defendants could not immediately be reached.

Speaking of the two former SAC employees, Gasthalter said: The government alleges that their improper conduct together began at their prior firms in 2006 and continued after they joined SAC in mid-2008. They were employed at SAC for a short time and were dismissed in January 2010 and June 2010, respectively, due to poor performance. SAC is continuing to cooperate with the government's investigation.

(Additional reporting by Martha Graybow, Jonathan Stempel, Emily Chasan and Svea Herbst-Bayliss; Editing by John Wallace, Derek Caney, Dave Zimmerman and Steve Orlofsky)