Harvard MBA Pleads Guilty to Fraud

by John A. Byrne on

A second Harvard Business School alum pleaded guilty today (May 27) to insider trading.

Samir Barai, a hedge fund manager who graduated from Harvard in 1999, pleaded guilty to to one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, one count of wire fraud, and one count of obstruction of justice.

Barai is the second Harvard MBA to plead guilty in the biggest insider trading case since the 1980s when junk bond king Michael Milken was indicted on 98 counts of racketeering and securities fraud. Adam Smith, a former 1999 classmate and ex-Morgan Stanley banker and a former employee of hedge fund Galleon Group, pleaded guilty earlier this year.

The insider trading crackdown has now claimed three Wharton MBAs and the two Harvard MBAs. A remaining Harvard grad, one of the school’s most prominent alums, Rajat Gupta, remains accused of insider trading by the Securities & Exchange Commission. Gupta, the former managing director of McKinsey & Co., denies the charges.

Barai, the founder of Barai Capital Management LP, can face both jail time and major fines. The conspiracy count carries a maximum sentence of five years in prison, the securities fraud count carries a maximum sentence of 20 years in prison, the wire fraud count carries a maximum sentence of 20 years in prison, and the obstruction count carries a maximum sentence of 20 years in prison. He also faces millions of dollars in fines and disgorgement at sentencing in August.

Barai entered his plea in the U.S. District Court for the Southern District of New York. In a statement, U.S. Attorney Preet Bharara said Barai worked as a portfolio manager between 2006 and 2010 at two hedge funds located in New York. During that time, he and several co-conspirators allegedly participated in a conspiracy to obtain material, non-public information, such as detailed financial earnings, about numerous public companies.

According to the attorney general, Barai and his co-conspirators used an “expert networking” firm to communicate with and pay their alleged sources of inside information. The defendants also allegedly obtained inside information from independent research consultants. Bharara said that after Barai and his co-conspirators received information from their sources, Barai had regular conference calls to share information with co-conspirators who worked at other hedge funds.

Billionaire hedge fund manager Raj Rajaratnam, a Wharton School MBA, was convicted earlier this month on May 11 on all 14 counts of fraud and conspiracy by a federal jury in New York. Rajaratnam, head of the Galleon Group, now faces up to 25 years in prison when he is sentenced. He is expected to appeal the verdict. Another Wharton alum, Anil Kumar, who had met Rajaratnam when they were both first-year MBAs, pleaded guilty to securities fraud charges last year and testified against his old classmate in hopes of leniency at sentencing. A third Wharton classmate, Rajiv Goel, a former Intel mid-level executive, also has pleaded guilty to giving illegal stock tips with Rajaratnam.

DON’T MISS: HOW A HARVARD MBA TRADED ON INSIDE INFORMATION or HBS ALUM CHARGED WITH INSIDER TRADING

  • Haque

    No offence to Indians,

    but really what’s with all this insider trading!

  • Arthur Featherstonehaugh Dullsworthy

    Raj is from Sri Lanka, otherwise that’s my question. Know your South Asians!

  • Jim John

    Its not really an issue of ethnicity, as much as the prevailing culture of the workplace. The hedge fund culture that Rajaratnam swam in glorified ends over means… his clients didn’t give a damn if he was cheating or not, as long as he was successful that was good enough.

    Same thing with Bernie Madoff, Stamford, and all the other guys who were unlucky enough to be caught. They played the game and got caught… Not to say that all hedgies are like this, but many are driven to cheat due to the competitive and cutthroat nature of the business.

  • Bruce Vann

    I agree with Jim.

  • http://wharton.upenn.edu whartonkid

    The number of indians getting caught is not an ethnicity bias towards committing these white collar crimes, it’s a mere reflection of the increasing number of indians in investment mgmt industry

  • Jane

    wharton kid……your point is not exactly relevant to this discussion. The discussion is about cheating Hedge Fund managers, and not about ethnicities in investment management :)

    Jim…….Well said.

  • Allen S

    He should have consulted someone that had an MBA in criminal justice. We wrote about this article on our blog as well if you want to read more about it. http://criminaljusticehq.com/

    Really fascinating and troubling article.

    Cheers.

  • Viresh T

    Shameless! This is major cultural problem in India, Pakistan, Bangladesh and Sri Lanka. These are extremely poor countries where there is rampant corruption. It is accepted as a facet of life. So these people do the same thing in the workplace. I’m an Indian and I think this is a systemic cultural problem. Chinese are also cheating, but they are doing it by stealing intellectual property and cheating on exams etc. This is a huge image problem for Asia. We have bright stars and talent..but we don’t have a core system of beliefs. There is no commitment to ethics. We want to cut corners to get ahead. I feel it is a huge setback for our Asian communities. We need to stop judging people by how much money they make…we have such a narrow mindset. I appeal to my fellow Indians and other south asians to please conduct yourselves with dignity — especially when you are in foreign countries. Here in America, we need to set an example for everyone else. We are guests in another country and let us not let down our motherland by behaving like this. This also applies to Indian Americans who are for all practical purposes Indians. Your actions reflect upon the mother land and as Gandhi said — before you try to do good, make sure you do no harm! Jai Hind.

  • Somnath

    Well said boss. I agree with you. Even a few people like this HBS guy will spoil the image of Indians here in US and it will mean that companies may not want to hire us because of the stigma. All the hard work and struggle can be rendered meaningless by the actions of a few. Even in this forum someone has asked why so many Indians in insider trading. I’m just hoping that recruiters don’t think that all Indians are like this..because you know they will think like that. It’s just like when Slumdog Millionaire or Bend it like Beckham movie came out and everyone thought all Indians were like that. We have 1 billion and diverse culture..but US recruiters may not know all that. Let’s hope the long term impact is not negative for us financial professionals. Even bshools may start asking applicants from India for additional essays about ethics and so on because no school wants the stigma of corruption. Well said Viresh. I agree with you. Let’s hope that people understand that not all South Asians are frauds.

Partner Sites: C-Change Media | Poets & Quants for Execs | Tipping the Scales | Poets & Quants for Undergrads