Don Ching Trang Chu, the “expert-network” executive arrested yesterday on insider-trading charges, had a roster of Asia-based employees of North American technology companies to feed information to clients, according to court documents.
Chu, who worked for Primary Global Research LLC of Mountain View, California, offered to set up hedge-fund manager Richard Choo-Beng Lee with employees of Sierra Wireless Inc., Broadcom Corp. and Atheros Communications Inc. when he planned to travel to Taiwan in 2009, U.S. prosecutors said in a criminal complaint yesterday in Manhattan. Lee, co-founder of Spherix Capital LLC, was secretly cooperating with the government after being ensnared in the Galleon Group insider-trading probe.
Primary Global billed Chu on its website as the firm’s “bridge to Asia experts and data sources.” In e-mails and recorded conversations, Chu, 56, said he liked arranging investor meetings in Asia because regulators weren’t too aggressive.
The U.S. Securities and Exchange Commission is “too strong,” Chu told Lee in a conversation recorded by the Federal Bureau of Investigation in August 2009, according to the complaint. “In Asia, there, nobody cares.”
Primary Global is one of about 40 firms that connect investors with research and experts in a range of sectors, countries and thousands of individual companies. The detailed information they provide on product development, sales and company strategy complements, and sometimes supplant, conventional research provided by Wall Street firms.
Insider trading involves the illegal buying or selling of stock using material, nonpublic information. Last year, Lee pleaded guilty to insider trading at San Jose, California-based Spherix Capital, one of 14 guilty pleas in the Galleon case. Raj Rajaratnam, founder of New York-based Galleon, and former hedge-fund consultant Danielle Chiesi yesterday lost a bid to bar wiretap evidence against them. They deny wrongdoing.
“There is probable cause to believe that Chu promotes the firm’s consultation services by arranging for firm consultants to provide material, nonpublic information regarding certain public companies’ releases of significant financial information or other market-moving events,” prosecutors said.
Chu, who lives in Somerset, New Jersey, is charged with one count each of conspiracy to commit securities fraud and conspiracy to commit wire fraud. He faces as much as 25 years in prison if convicted of the wire fraud charge. James DeVita, an attorney for Chu, declined to comment.
Chu’s arrest is part of a wider crackdown by Preet Bharara, the U.S. Attorney in Manhattan, into what he last month called “rampant” insider trading. The latest push, building from the Galleon case and adding a more international reach, is centered on whether expert-network firms arranged for clients including hedge funds and mutual-fund companies, to receive nonpublic information.
Hedge Funds Targeted
FBI agents on Nov. 23 searched the offices of Level Global Investors LP and Diamondback Capital Management LLC. Both hedge funds were founded by former employees of SAC Capital Advisors LP, the $12 billion hedge fund run by Steven A. Cohen. Lee worked at Stamford, Connecticut-based SAC from 1999 to 2004. A third hedge fund, Boston-based Loch Capital Management, was also searched by agents, according to a person familiar with the matter.
SAC and mutual funds Wellington Management Co. of Boston and Denver-based Janus Capital Group Inc. have been asked for documents as part of the probe.
Chu was Primary Global’s Taiwan liaison and worked there about seven years, Dan Charnas, a spokesman for the firm, said in an e-mailed statement. The firm hasn’t been charged with any wrongdoing.
“Based upon recent events, PGR has severed its relationship with Mr. Chu,” he wrote.
In several conversations recorded by investigators, Chu, who was born in Taiwan and became a U.S. citizen in 1987, describes his access to numerous contacts in Asia willing to share financial information about their employers.
An unnamed employee of Broadcom “probably gave Broadcom’s revenue numbers before Broadcom’s quarter end because that is what he does,” Chu is quoted as saying in the complaint.
Broadcom, based in Irvine, California, is the biggest maker of chips for television set-top boxes. Bill Blanning, a spokesman, didn’t immediately return calls seeking comment.
Lee told Chu he was surprised that a contact provided by Chu “gave me the number last quarter. It’s like on the spot.”
Chu replied, “On the spot. All depends on the person. Some guys willing to talk, some are not.”
Sierra Wireless Revenue
Primary Global records show that Chu’s firm paid one unnamed source more than $200,000 between about January 2008 and about March 2010, prosecutors said.
FBI agents approached Chu on or about Nov. 21, according to the complaint. In the meeting Chu said he knew that an employee of Sierra Wireless met with hedge-fund clients in Taiwan and “provided Sierra Wireless’s revenue numbers, average selling price information and design wins,” referring to contracts to sell a product design to another firm, FBI special agent B.J. Kang said in the complaint.
Chu said he had listened to the conversation between his hedge-fund client and the Sierra Wireless employee, Kang said.
Sierra Wireless said in a statement it is aware of the complaint and is cooperating with the U.S. Attorney’s office in New York. Sharlene Myers, a spokeswoman for the Richmond, British Columbia-based maker of wireless data-communications equipment, declined to comment.
In June 2009, Chu sent Lee an e-mail detailing Atheros’s outlook for second-quarter earnings that the maker of wireless local area networks had yet to report.
In an e-mail on or about Aug. 10, 2009, Lee told Chu he wished to meet two Atheros contacts. “As you know, I am not in a position to pay directly through trades, but perhaps I can buy your friends a good meal.”
Chu responded, “It’s my pleasure to assist you.”
One of five employees of Atheros listed as consultants to Primary Global was paid $15,260.79 between about January 2008 and about June 2010, according to the complaint. Ali Hariri, a former Atheros vice president, was sentenced to 18 months in prison in the Galleon case on Nov. 8.
“If requested, Atheros will cooperate fully in any government investigation,” the Santa Clara, California-based company said yesterday in an e-mailed statement. “At this time, we have no further comment.”
The case is U.S. v. Chu, 10-Mag-2625, U.S. District Court Southern District of New York (Manhattan).