An executive of a hedge-fund networking firm was arrested Wednesday on charges related to insider trading, part of a broad investigation of hedge funds by U.S. prosecutors.
A criminal complaint unsealed in U.S. District Court in New York said Don Ching Trang Chu promoted the services of his California-based firm, Primary Global Research, by arranging for inside information to be leaked to hedge funds.
Chu's arrest 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.
The government won a big victory in the Galleon case on Wednesday when a judge ruled that secretly-recorded telephone conversations of Rajaratnam 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 Jan. 17.
Prosecutors have described the Galleon case as the biggest probe of insider trading at hedge funds in the U.S. 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 are businesses that take fees to match up hedge funds with experts in particular industries such as medicine, engineering and technology.
The widening investigation heated up on Monday when FBI agents used court-approved search warrants to raid three hedge funds in Connecticut and Massachusetts.
Lee once worked for SAC Capital. There is nothing in Wednesday's complaint that alleges any wrongdoing at SAC Capital. 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, N.J., made a brief appearance before a magistrate judge in New York Wednesday 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 was scheduled to leave the U.S. for Taiwan this Sunday. 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.