Business Blog Posts

The arrest of Don Ching Trang Chu of Primary Global Research stems from wiretaps and the cooperation of Richard Choo-Beng Lee, a hedge fund manager who pleaded guilty last year as part of the insider-trading prosecution of Galleon Group hedge fund founder Raj Rajaratnam and 22 other traders, lawyers and executives.

Chu, 56, also known as Don Chu, was accused in a criminal complaint in U.S. District Court in New York of introducing hedge funds to corporate executives who gave them insider trading information.

The government scored a victory in the Galleon case on Wednesday when a judge ruled that telephone conversations of Rajaratnam's that were secretly recorded by the FBI were admissible as evidence at his trial. Rajaratnam has pleaded not guilty to charges of conspiracy and securities fraud and is scheduled to go on trial on January 17.

Prosecutors have described the Galleon case as the biggest investigation of insider trading at hedge funds in the United States. The investigation has widened to include subpoenas of several funds with billions of dollars under management.

In subpoenas served on SAC Capital Advisors and other hedge funds and mutual funds, authorities have asked for information about so-called "soft dollar" deals, an arrangement in which a hedge fund client executes trades through a designated brokerage that has some relationship with an expert networking firm such as Primary Global.

Expert networking firms take fees to match up hedge funds with experts in particular industries such as medicine, engineering and technology.

The investigation widened on Monday when FBI agents used search warrants to raid three hedge funds in Connecticut and Massachusetts.

Lee once worked for SAC Capital. There is nothing in Wednesday's complaint accusing SAC Capital of any wrongdoing. A spokesman for SAC declined to comment.

Authorities are looking at funds established by former associates of SAC founder Steven Cohen, according to lawyers and people familiar with the investigation.

A spokesman for Primary Global Research said in a statement that "based upon recent events, PGR has severed its relationship with Mr. Chu."

The statement said Chu served as the firm's liaison in Taiwan and that he had been with PGR for seven years.

Chu, of Somerset, New Jersey, made a brief appearance before a magistrate judge in New York and was released on a bond of $1 million. Chu was not asked to enter a plea to the charges and both of his lawyers declined to comment.

The office of Manhattan federal prosecutor Preet Bharara said Chu had been scheduled to leave the United States for Taiwan on November 28. His lawyers said Chu had planned the trip to visit family. The court was told that Chu had surrendered his U.S. passport and agreed to surrender an expired passport issued by Taiwan.

Prosecutors said Chu had arranged for hedge funds to receive confidential information on companies including Atheros Communications Inc, Broadcom Corp and Sierra Wireless Inc.