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Somerset resident was part of the ‘expert network' being investigated by FBI

BY JOE TYRRELL

NEWJERSEYNEWSROOM.COM

A New Jersey man arrested in a highly publicized insider trading investigation was immediately fired by his employer, Primary Global Research, after authorities charged he used the firm's contacts to pass along non-public information to clients.

Don Chu, 56, of the Somerset section of Franklin Township, was arrested at his home early Wednesday morning, for three days he had been interviewed by the Federal Bureau of Investigation. He was charged with one count each of securities fraud and wire fraud.

Among other things, Chu told agents that some consultants his firm used to track Asian technology companies would pass along inside information to clients, according to an FBI affidavit.

During the Nov. 21 interview, Chu identified a client, Richard Choo-Ben Lee, as having met with consultants willing to share inside information on their companies, according to the affidavit from B.J. Kang, the FBI special agent in charge of the probe.

But Lee, co-founder and president of the Spherix Capital hedge fund, had already become a cooperating witness after being arrested and pleading guilty to the same charges in the investigation of another firm.

Until his arrest, Chu, who was paid $72,000 a year to follow Asian technology companies, was identified on Primary Global Research's website as having "deep connections" in Asian markets.

Chu's arrest is the first in what Preet Bharara, the U.S. attorney in Manhattan, has described as a move against "rampant" insider trading. This phase focuses on whether hedge funds and mutual funds have been able to take advantage of insider information from the growing number of "expert network" firms, like Chu's former employer.

During a period of widespread mortgage fraud, sales of defective securities and multi-billion-dollar losses by investors, Bharara's predecessors remained curiously inert. While some financial industry analysts agree insider trading is pervasive, the renewed interest in enforcing those laws is only tangentially related to allegations of larger frauds by major players.

Last month, John Kinnucan, who operates a small expert networking firm in Portland, Ore., widely touted his refusal to cooperate in the investigation. Kinnucan described his contacts as "foot soldiers and worker bees" in the finance industry.

One larger target of the current flurry of records seizures and interviews by the FBI appears to be SAC Capital, the hedge fund where Lee worked. Two of the hedge funds raided this week, Diamondback Capital and Level Global Investors, were launched by former SAC employees.

Lee was caught up in the highest profile case so far, the October 2009 arrest of Raj Rajaratnam, billionaire founder of the Galleon Group hedge fund. That indictment named other traders, executives and consultants, including Lee.

The case against Rajaratnam was strengthened this week when U.S. District Judge Richard Howell admitted government wiretaps as evidence. Howell's ruling came despite his criticism of Kang, whose affidavit in that case contained "inaccuracies and inadequacies," the judge said.

Lee began cooperating with the government in April 2009, according to Kang. The charges against Chu stem from some e-mails and conversations with Lee in the following months.

According to the affidavit, Chu arranged for several of Primary Global Research's consultants, who worked for American and Canadian companies doing business in Asia, to discuss their firms' outlook. The discussions included quarterly profits, sales, gross margins and similar information before they were publicly released, Kang wrote.

Chu drew the line at having Lee call his contacts directly, saying those contacts had to be routed through PGR's call center or "then we can't pay" the consultants, the affidavit said.

In exchanges where Lee appears to be trying to get Chu to implicate himself, the affidavit quotes Chu as admitting he was "nervous" about their dealings. In what turned out to be prescient, at least in his own case, the affidavit quotes Chu as advising Lee that it is better to have such discussions in Asia than in the United States.

The United States is "dangerous" because the U.S. Securities and Exchange Commission is "too strong" here, the affidavit quotes Chu. "In Asia, the SEC can't do too much there."

Joe Tyrrell may be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it