Ex-Primary Global Consultant Chu to Waive Indictment in Fund Insider Case
Don Ching Trang Chu, an expert consultant to hedge funds who is accused of passing inside information, had “extensive” plea talks with U.S. prosecutors, a prosecutor told a federal judge today in Manhattan.
Chu, 57, who worked for Primary Global Research LLC, appeared in court today before U.S. District Judge Jed Rakoff, in Manhattan and entered a not guilty plea to a new criminal information unsealed today. That charging document accuses Chu of two crimes, conspiracy to commit securities fraud and conspiracy to commit wire fraud conspiracy.
Federal defendants traditionally waive their right to be indicted by a grand jury and agree to be charged in a criminal information as a prelude to entering into an agreement with prosecutors and pleading guilty.
“This case comes after some extensive plea negotiations and they are still ongoing,” Assistant Manhattan U.S. Attorney David Leibowitz told Rakoff at today’s hearing.
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.
Rakoff noted today that Chu’s case was added today to a pending criminal case involving James Fleishman, a former sales manager with Primary Global. He asked lawyers in the case if they wanted Chu’s case put on the same trial schedule as Fleishman’s case.
Fleishman, who was indicted in February on conspiracy to commit securities fraud and conspiracy to commit wire fraud, has pleaded not guilty and is awaiting trial.
Chu’s lawyer, James DeVita today consented to the cases being joined and told Rakoff he needed to review evidence before agreeing that his client should be tried with Fleishman.
“I do not believe there is a significant overlap of facts as relates to Mr. Chu and as they relate to Mr. Fleishman, even though there were employees of the same firm” DeVita said.
Rakoff responded he would wait to see if Chu would plead guilty saying, “The fact is, that in 99.9 percent of these cases where a criminal information is filed, there is usually a guilty plea.”
$1 Million Bond
DeVita said after court that his client, who is free on $1 million bond, had consented to proceed with a criminal information instead of waiting for a federal grand jury to indict him.
“I look at this as what we gain by having him not charged by a federal grand jury,” he said, adding that he would now have access to the evidence which the government has against Chu.
Asked after court if his client was considering pleading guilty, DeVita said, “We’ve had discussions.”
Chu’s biography on the Primary Global website identifies him as “Asia Expert and Data Sources.”
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.
‘Interests of Justice’
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. (3062) and Z-Com Inc. (8176) 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.
Rakoff set a June 28 conference in the case.
Leibowitz also said today that the government was in the process of “spinning” or copying hard drives from Primary Global and other locations which the U.S. had collected as part of their probe on a wiretap at the expert networking firm.
“I want to confirm that there are recordings of Mr. Chu, many wiretap intercepts in the case,” Leibowitz said. “I can tell your honor that there was a PGR conference wire,” he said. “I want to say there are other older wires, which I can’t say for certain he may have been intercepted on an older wire.”
Lee’s hedge fund allegedly paid Chu’s firm for the inside information, prosecutors said. Employees of Atheros Communications Inc. (ATHR), Broadcom Corp. (BRCM) and Sierra Wireless Inc. (SW) passed earnings estimates and other data to Primary Global’s clients, according to the criminal complaint.
Primary Global connects investors with employees of public companies who purportedly provide them with insight into specific markets. Prosecutors have alleged that the company insiders were paid to provide material nonpublic information to the investors.
Primary Global Tips
Fleishman is accused of helping investors obtain inside information from consultants working for the expert-networking firm. He also faces related civil claims by the U.S. Securities and Exchange Commission, has been free on bail since his December arrest. The SEC said tips from Primary Global insiders helped investors reap $5.9 million in illegal profits.
Other Primary Global employees or consultants facing criminal charges include Daniel Devore, Mark Longoria, Walter Shimoon, Manosha Karunatilaka and Winifred Jiau. 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 November on 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. 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.
Bob Nguyen, another Primary Global employee, pleaded guilty in January in federal court in New York to conspiracy and fraud and admitted he was part of a scheme to provide hedge fund clients with material, nonpublic information.
The case is U.S. v. Chu, 11-CR 032, U.S. District Court, Southern District of New York (Manhattan).
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