How A Harvard MBA Traded On Inside Info

DUMBFOUNDED FRIENDS SAY HE IS ONE OF THE “NICEST, MOST GIVING’ INDIVIDUALS THEY KNOW.

Early in the morning on Tuesday, Feb. 8^th, Barai surrendered to federal investigators in New York and was charged with securities fraud, conspiracy and obstruction of justice. Barai, who would not comment for this story, is accused of engaging in insider trading involving shares of Marvell Technology Group Ltd., Fairchild Semiconductor International Inc. and several other tech firms.

Friends of Barai, meantime, are dumbfounded that he has gotten himself ensnared in one of the largest insider trading investigations ever. They note that he had overcome many obstacles that led to the creation of his hedge fund firm which manages about $100 million in assets. He was known to be an incredibly hard working, self-made person, the American born son of a computer retail store owner in New Jersey. When in high school, guidance counselors told him his best chance of advanced study was to go to a community college. Instead, Barai managed to get into New York University, where he sat in the front row of classes and read the lips of professors. He landed a job with Merrill Lynch, before going to Harvard Business School where he earned his MBA in 1999.  Friends say Barai, who call him “Sam,” is a self-effacing and humble person, gentle and generous. “He is one of the nicest, most giving individuals I’ve ever known,” says one friend. “It makes you wonder how after all this hard work he’d wind up at this point.”

HBS DEAN NOHRIA: ‘WE TRY TO DO ALL WE CAN TO CONVEY THE IMPORTANCE OF INTEGRITY AND ACCOUNTABILITY.’

Back at his alma mater, where a new Harvard Business School dean is emphasizing values and ethics, there is deep disappointment. “These are serious allegations, which if proved true are of great concern to me as a teacher, as a dean, and as someone who is dedicated to restoring people’s trust in business leaders,” said Dean Nitin Nohria in a statement. “We try to do all we can at HBS to convey the importance of integrity and accountability to our students and will keep striving to do more.”

Indeed, during his first year at Harvard, Barai would have taken the required course ”Decision Making and Ethical Values,” that had been put into HBS’ curriculum eight years earlier. The module offered students an ethical framework to use as a guide for making decisions and using sound judgment. Barai would have sat in one of Harvard tier-classrooms to engage in the class discussion only months after having a cochlear implant that allowed him to hear sounds for the first time in his life.

The lessons from that class, including several case studies on ethics, must have eluded him. And now Barai could very well become the protagonist in a Harvard Business School case study himself. The government’s complaint, including an affidavit from an FBI agent involved in the investigation, has all the detail to make a riveting case study for future MBA students.

The day after Barai read the Journal story online, it appeared in print in the newspaper’s Nov. 20th edition. Both Barai and Pflaum apparently spent a restless night, worried about how the case would unravel.

Pflaum sent his boss a message early that morning. (Their detailed text messages, including typos and short cuts, are contained in the government complaint.)

“Yo,” Pflaum wrote, “deleted them. Didn’t sleep so well last night.”

“Didn’t sleep much either,” shot back Barai.

“What do you think we need to do?” asked Pflaum.

“I dunno,” Barai answered. “I think we ok tho. I think U just go into office. Shred as much as u can. Put all ur data files onto an encrypted drive. I think all your offline stuff is an issue.”