Don Ching Trang Chu, an expert consultant to hedge funds who worked for Primary Global Research LLC, will appear in federal court in New York to plead not guilty to insider trading charges and waive his right to be indicted by a U.S. grand jury, his lawyer said.
Federal defendants traditionally waive their right to be indicted by a grand jury as a prelude to entering into an agreement with prosecutors and pleading guilty.
Chu, who worked as the Taiwan liaison for the expert-networking firm based in Mountain View, California, was arrested in November, charged with passing tips to Richard Choo-Beng Lee, a former partner at San Jose, California-based Spherix Capital LLC beginning in late 2008, according to a criminal complaint filed by U.S. Attorney Preet Bharara in Manhattan.
Chu's lawyer, James DeVita, said his client, who is free on $1 million bond, will appear today before U.S. District Judge Jed Rakoff, in Manhattan.
“I don’t have a resolution to this case yet,” DeVita said in a telephone interview, when asked if his client would plead guilty. “I can tell you that he’s not requiring the government to go to a grand jury and obtain an indictment against him but we have yet to resolve this case and it won’t be today.”
‘Interests of Justice’
Chu is connected to a series of criminal cases brought by Bharara’s office tied to a nationwide probe of insider trading at hedge funds and the expert networkers who provide them with inside information. Chu, was charged with arranging for insiders at publicly traded companies to improperly provide information to clients of his firm.
His case has been adjourned several times since his Nov. 24 arrest “in the interests of justice,” court records show.
Chu, a onetime employee at AT&T’s Bell Laboratories, worked for Taiwanese firms including CyberTan Technology Inc. and Z-Com Inc. before joining Primary Global. The expert networking firm connects investors with industry experts who provide insight into a specific market.
One client was Spherix Capital LLC, a hedge fund where Lee used secret tips to trade stocks, according to Lee’s guilty plea last year.
Lee has pleaded guilty and is cooperating with the government’s investigation of hedge funds, including Galleon Group LLC, prosecutors said. Before Spherix, Lee was employed as an analyst by SAC Capital Advisors LP, the hedge fund firm run by Steven A. Cohen, from 1999 to 2004.
Lee’s hedge fund allegedly paid Chu’s firm for the inside information, prosecutors said. Employees of Atheros Communications Inc., Broadcom Corp. and Sierra Wireless Inc. passed earnings estimates and other data to Primary Global’s clients, according to the criminal complaint.
Primary Global said in a statement issued at the time of Chu’s arrest that he was born in Taiwan and became a naturalized U.S. citizen in 1987. The firm said Chu worked for the firm for about seven years.
Chu was originally charged in a criminal complaint that accused him of one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud. He faces as much as 25 years in prison if convicted of wire fraud conspiracy.
He was the first in a new wave of federal arrests tied to the Galleon Group case, the largest insider trading probe involving hedge funds. Two overlapping insider trading cases involving Galleon Group founder Raj Rajaratnam have led to accusations against more than 20 people.
To date, 21 people have pleaded guilty in the case, with most agreeing to cooperate with prosecutors and testify against others. A federal jury in New York has been deliberating the Rajaratnam case since April 25.
Malaysian-born Lee, who was a colleague of Rajaratnam for 20 years at Needham & Co. and one of the original defendants in the Galleon case, pleaded guilty last year to receiving inside information “from one of my sources in Asia.”
The scheme Chu was allegedly involved in ran from January to August 2009, prosecutors said. Evidence against him described in the complaint was gathered from the U.S. Securities and Exchange Commission, bank records, unnamed cooperating witnesses and “court-authorized wiretaps on a telephone subscribed to an unnamed hedge fund.” The U.S. said the FBI intercepted calls made between Oct. 15, 2008, and Feb. 4, 2009.
As part of the U.S. investigation into insider trading at hedge funds, agents with the Federal Bureau of Investigation’s New York office on Nov. 22 searched the offices of Level Global Investors LP and Diamondback Capital Management LLC. Both firms were founded by former employees of Stamford, Connecticut-based SAC Capital Advisors LP. A third hedge fund, Boston-based Loch Capital Management, was also searched by agents that day, according to a person familiar with that matter.
Cohen’s SAC was subpoenaed by the U.S. seeking documents a day later. No allegation of wrongdoing has been made against SAC, which manages $12 billion.
The case is U.S. v. Chu, 10-Mag-2625, U.S. District Court, Southern District of New York (Manhattan).