Don Chu arrested in insider-trading probe

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- The feds on Wednesday escalated their unfolding insider-trading crackdown by arresting an employee of an "expert-networking" firm who allegedly conspired to leak information to hedge funds.

Don Chin Trang Chu, known as Don Chu, arranged for insiders at publicly traded companies to provide information to hedge funds "for the purpose of executing profitable securities transactions," according to a federal complaint unsealed in a Manhattan court.

The complaint said Chu worked for an "expert networking" firm based in California without naming the company. A spokesperson for Mountain View, Calif.-based Primary Global Research said in a statement that Chu was the company's Taiwan liason for about 7 years.

"Based upon recent events, PGR has severed its relationship with Mr. Chu," the spokesperson said.

The arrest came days after FBI agents raided the offices of three hedge funds in New York, Connecticut and Boston. The raids were seen as part of a broad investigation into insider trading that centers on expert networking firms, which provide research "services" to large institutional investors.

Preet Bharara, U.S. attorney for the Southern District of New York, and Janice Fedarcyk, of the New York office of the FBI, announced the arrest in New York. A spokesman for the U.S. attorney declined to elaborate on the arrest or the broader probe.

Chu, 56, of Somerset, N.J, was scheduled to depart to Taiwan on Sunday, prosecutors said. He has been charged with wire and securities fraud, and could face up to 25 years in prison if convicted.

In 2008, Chu established a relationship with Richard Choo-Beng Lee, who at that time worked for an unnamed hedge fund, prosecutors said.

Lee began cooperating with investigators in April 2009 and has since entered a guilty plea on charges of conspiracy and securities fraud.

Chu arranged for his firm's experts to leak a technology company's quarterly earnings results to hedge funds, which used the information to their advantage in the stock market. The funds allegedly paid Chu's firm by using it to execute trades based on the information, paying commissions and fees to the firm's broker-dealers, the prosecutors said.

One of the companies about which Chu allegedly provided inside information was wireless and semiconductor company Broadcom (BRCM, Fortune 500), according to the complaint.

In August 2009, Chu told Lee in a phone conversation that a Broadcom employee could provide "top line revenues" for the company, prosecutors said.

Chu then told FBI agents last week that the Broadcom employee "probably gave [a certain hedge fund manager] Broadcom's revenue numbers before Broadcom's quarter end because that is what [the Broadcom employee] does," according to the complaint. "When you ask [the Broadcom employee] for Broadcom's revenue numbers, [the Broadcom employee] will give it to you."

The lawyer representing Chu, Jeffery Plotkin of Day Pitney, did not immediately respond to calls requesting comment.

The Wall Street Journal reported last week that the government is wrapping up a three-year investigation into insider trading and expert consulting firms. Such firms have become widespread on Wall Street in the last few years but remain relatively unknown outside of financial circles.

Expert networking firms often connect big investment firms such as hedge funds and mutual funds with consultants that can provide insight into companies they are interested in or already invested in. In some cases, the experts are a customer, client or employee of the company in question.

Latour "LT" Lafferty, a former federal prosecutor who now heads the white collar crime division at Florida law firm Fowler White Boggs, said expert networking firms are not as tightly regulated as other companies in the financial services industry and are therefore "ripe for abuse."

Given the recent spate of raids and Wednesday's arrest, Lafferty expects regulators to announce additional charges in the weeks ahead.

"The U.S. attorney in Manhattan has made it clear that insider trading and white collar crime is one of his top priorities," he said.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,122.01 15.31 0.09%
Nasdaq 4,569.62 -1.02 -0.02%
S&P 500 2,000.12 0.10 0.00%
Treasuries 2.36 -0.03 -1.25%
Data as of 3:48am ET
Company Price Change % Change
Bank of America Corp... 16.20 -0.13 -0.80%
Apple Inc 102.13 1.24 1.23%
Facebook Inc 74.63 -1.33 -1.75%
Yahoo! Inc 38.18 0.39 1.03%
Pfizer Inc 29.49 0.28 0.96%
Data as of Aug 27

Sections

Staggering interest from the Chinese in an immigration program has led the U.S. to run out of available visas for the first time ever. More

Former Fed chief Ben Bernanke believes the 2008 financial crisis was the worst in global history, topping even the Great Depression. More

Snapchat has gotten a $20 million funding round from Kleiner Perkins, valuing the company at $10 billion, according to the Wall Street Journal. More

Utah State professor Michael Glauser cycled 4,000 miles this summer, visiting 100 entrepreneurs across the country. Here's a snapshot of how they grew their businesses. More

Five CNNMoney readers share stories about saving that you can learn from: What they would do differently if they had another chance. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.