Primary Global Research LLC, the consulting firm whose employee was arrested in the U.S. crackdown on insider trading, uses a “gated network” of experts that can help clients make investment decisions.
Some of the experts employed by the Mountain View, California-based firm were insiders at publicly traded companies who shared nonpublic information about forthcoming results with its hedge-fund clients, according to sworn testimony by FBI agent B.J. Kang unsealed yesterday by U.S. prosecutors in New York.
“Certain hedge funds ask firm consultants about their respective companies’ revenue numbers and how their companies will report their earnings numbers prior to their earnings report,” Kang testified. “Some firm consultants will talk about their companies’ revenue numbers and some do not.”
Authorities arrested Don Ching Trang Chu, who was Primary Global’s Taiwan liaison, on charges that he arranged to provide inside information to hedge-fund clients. The arrest was part of a crackdown led by Preet Bharara, the U.S. Attorney in Manhattan, whose latest push is centered on whether expert-network companies arranged for their money-manager clients to receive nonpublic information.
Primary Global has not been charged with wrongdoing.
Chu was with the firm for about seven years, Dan Charnas, a spokesman for the firm, said in an e-mailed statement.
“Based upon recent events, PGR has severed its 2 relationship with Mr. Chu,” Charnas said.
Chu’s sources in Asia were typically employees of technology companies, according to the government documents released yesterday.
Jim Margolin, a spokesman for the FBI’s New York Office, said Chu was arrested at his home in Franklin Township, N.J. Chu was scheduled to leave the country for Taiwan on Nov. 28, Margolin said.
Kang testified that Chu indicated in 2009 that an employee of Broadcom Corp. gave the chipmaker’s revenue figures to the founder of a New York hedge fund before the earnings results were released.
Primary Global says on its website that “experts are explicitly instructed to decline to comment in subjects that represent information that is confidential or proprietary to the organization they are affiliated with.”
The firm matches customers with experts in eight industry groups, including technology, Internet and health care. Its “exclusive client base and gated network maximize the value of incremental information, giving institutional investors and analysts a strategic advantage when making investment decisions,” the firm says on its website.
“If you know it’s stolen information and you sell it, you are liable like the thief himself,” Tamar Frankel, a corporate governance professor at Boston University, said in a telephone interview.
Primary Global is one of the 10 largest expert networks in the U.S., Michael Mayhew, chairman of Integrity Research Associates in New York, said in an interview. There are about 40 expert networks, the biggest being Gerson Lehrman Group Inc. in New York, Mayhew said.
Consultants employed by Primary Global can earn “hundreds of dollars per hour” and clients pay “tens of thousands of dollars annually for access to the firm’s consultant network and services,” Kang testified.
Primary Global also receives payments in “soft dollars,” as clients direct trades through the firm’s trading platform, according to the documents released by U.S. prosecutors. The firm is a broker-dealer with a trading desk, it says on its website.
Founded in 2004, Primary Research is led by Chief Executive Officer Unni Narayanan, a former Intel Corp. executive. Before that, Narayanan worked at International Business Machines Corp., according to his profile on professional networking site LinkedIn.com.
Chu, 56, established a relationship with Richard Choo-Beng Lee, a former partner at San Jose, California-based hedge fund Spherix Capital LLC, prosecutors say in the unsealed documents. Lee was employed as an analyst by SAC Capital Advisors LLC, the Stamford, Connecticut, hedge fund run by Steven A. Cohen, from 1999 to 2004.
Lee’s fund paid Chu’s firm, identified by prosecutors only as based in Mountain View, California, for tips, according to the government’s 18-page complaint. Chu passed along inside information regarding technology company Atheros Communications Inc. and one of his contacts at Sierra Wireless Inc. tipped off a hedge-fund client with revenue and other key figures, according to the complaint.
Last year, Lee pleaded guilty to insider trading at Spherix Capital. He is cooperating with investigators in their probe of Galleon Group LLC, the New York-based hedge fund that shuttered after its billionaire founder, Raj Rajaratnam, was charged with insider trading. Rajaratnam has denied wrongdoing and is scheduled for trial next year.