Now we're talking turkey: Insider trading arrests beginNovember 24, 2010: 11:00 AM ET
After a week of hedge fund raids, federal officials have made their first arrest in what may be the largest insider trading investigation in U.S. history.
The first arrest of the insider trading season is upon us, as Don Chu was arrested this morning by federal authorities. Chu is an employee of Primary Global Research, according to Business Insider, which was one of the expert networks reportedly under investigation.
Seems he has been charged with "conspiracy to promote his firm's consulting service with inside company information for hedge fund clients."
He was scheduled to leave the U.S. for Taiwan this weekend, which perhaps accelerated the arrest.
Here is Chu's biography, according to the Primary Global Research website:
Don Chu is PGR's bridge to Asia experts and data sources. Don was a 25-year veteran in Data Communications Industry. He was with Bell Labs for more than 10+ years in data, wireless, and telecommunications arena. He has great view of technologies sector in Taiwan and China from fab, fabless through OEM/ODM players. Don intimately understands the wireless broadband communications industry, and has deep connections and relationships in the technology industry. Finally, Don is just a fun person to travel with on the highways and byways of Taiwan.
Got to love that last line...
According to the FBI:
In or about late 2008, Chu established a relationship with Richard Choo-Beng (C.B.) Lee, who at that time worked for a hedge fund. In late 2008 and early 2009, Lee's hedge fund was a client of the firm. Lee's hedge fund's practice was to have its employees call a firm consultant before the consultant's company was expected to release its quarterly earnings, in part to obtain inside information. Lee's hedge fund paid the firm through soft dollars, which are payments that occur when a firm client causes its trading activity to be directed through the firm's designated broker-dealer, so that commissions or fees from the executed trading activity of the client satisfy the payment for the firm's services.
If the name Richard Choo-Beng Lee sounds familiar, that's because last year he got ensnared in the Galleon insider trading case. Lee plead guilty to conspiracy and securities fraud charges, and agreed to cooperate with federal officials.
That cooperation -- which presumably included recordings of Lee's communications -- appears to have led investigators to Chu.
According to court documents, Chu introduced Lee to an employee at a publicly-traded technology company, who was able to provide accurate revenue and other data prior to the company's public earnings releases. Primary Global Research (not specifically named) allegedly paid that employee (also not named) around $200,000 for their "consulting services," even though Chu acknowledged in recorded conversations with Lee that he was "nervous" about the arrangement. In fact, Chu allegedly suggested certain means of electronic communication that would be difficult for the SEC to trace.
The FBI also alleges that Chu introduced Lee to a Broadcom employee who was willing to provide pre-release company earning information. That employee remains unnamed.
If convicted, Chu could face up to 30 years in prison and $500,000 in fines.