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Americas

Hedge funds feel the heat as FBI steps up insider trading probe

©

Text by News Wires

Latest update : 2010-11-25

Federal agents have arrested a consulting firm executive in New York in what is expected to be the first of multiple arrests linked to an extensive insider-trading scam that has been under investigation for the past three years.

 

AP - The first strike in a new federal offensive to root out insider trading on Wall Street came Wednesday with the arrest of a consulting firm executive who prosecutors said tipped off a hedge fund manager about corporate earnings before they became public.
 
The arrest of Don Ching Trang Chu of Somerset, New Jersey, came when investigators realized he was heading to Taiwan on Sunday. He made the trip frequently, but authorities were apparently concerned that he was traveling ahead of what are expected to be multiple arrests in the probe and after he had been interviewed by FBI agents Sunday.
 
Three hedge funds with offices in New York, Connecticut and Massachusetts were raided Monday in the investigation, and on Tuesday, prominent mutual fund company Janus Capital Group said it had been subpoenaed. There was no indication Chu had dealt with those companies.
 
According to prosecutors, Chu told the FBI agents that employees of public companies sometimes meet in Taiwan with hedge funds and disclose contracts and revenue figures, weeks before the companies announce their earnings.
 
The complaint said some of the evidence against Chu resulted from conversations he had with Richard Choo-Beng Lee, a former hedge fund co-manager who has pleaded guilty and is cooperating with the government.
 
It said Chu in June 2009 appeared to provide secrets about the second quarter earnings of California chipmaker Atheros Communications to Lee prior to the public earnings announcement.
 
The charges against Chu grew from what prosecutors described as the largest hedge fund insider trading bust in history. Fourteen people have already pleaded guilty. Last year, the probe ensnared Raj Rajaratnam, a onetime billionaire and founder of Galleon Group funds, who is free on $100 million bail and who claims he only traded legally and on public knowledge.
 
Investigators for Preet Bharara, the top federal prosecutor in Manhattan, have used wiretaps to capture executives bragging to clients and coworkers about how to get an inside advantage in securities markets. A federal judge on Wednesday declared the wiretaps legal over the objections of defense lawyers who said they are not authorized by law for insider trading cases.
 
Prosecutors said Chu had boasted to a government cooperator in a secretly recorded conversation that he knew of a method of electronic communication that could be hidden from law enforcement.
 
The federal insider trading probe targets industry analysts, experts and consultants who are hired for the edge they might provide in the trading of securities.
 
Chu, 56, clad in a red shirt and gray pants, declined to comment after he was released on $1 million bail following a brief appearance before a federal magistrate judge in Manhattan. His lawyer, James DeVita, said only: “We will have an opportunity to present a defense, and we’ll pursue that.”
 
Chu, who was born in Taiwan and became a U.S. citizen in 1997, worked for Primary Global Research, which prosecutors said advertised itself as an independent financial research firm with consultants experienced an array of industries.
 
The company promoted him on its website as a veteran in data communications and a “bridge to Asia experts and data sources.”
 
“Don intimately understands the wireless broadband communications industry, and has deep connections and relationships in the technology industry,” according to the website. “Finally, Don is just a fun person to travel with on the highways and byways of Taiwan.”
 
In a statement, the company said that based on recent events it has severed its ties with Chu, who had worked for the firm for seven years.
 
Chu was charged with one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud and fraud in connection with securities. The charges carry up to 30 years in prison.
 
Authorities said Chu, during one conversation with a cooperator from the Galleon probe, described a method of electronic communication that he believed could not be detected by law enforcement.
 
According to authorities, Chu referred to the method, saying:
 
“There’s no, no, no, no copy,” Chu said, according to authorities. “If you, it’s better than personal e-mail. ... There’s no copy save in the server. Even personal e-mail, there is a copy. ... So, ... just talk. Do, don’t, don’t put it down in writing. Dangerous.”

 

Date created : 2010-11-25

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