The Federal Bureau of Investigation has made the first arrest in a sweeping insider-trading investigation targeting hedge funds and others.
Don Ching Trung Chu was arrested on Wednesday morning at his Somerset, N.J., home and charged with conspiracy to commit securities fraud and conspiracy to commit wire fraud. According to prosecutors, while at Primary Global Research, Chu provided confidential tips about Atheros Communications, Broadcom Corp. and Sierra Wireless Inc. to hedge fund manager Richard Choo-Beng Lee.
Chu's arrest provides the first concrete link between the current insider-trading investigation, which has seen three hedge funds raided and dozens of others served with subpoenas, and the Galleon Group insider-trading case. Lee, who ran Spherix Capital, is a cooperating witness in the Galleon case. Lee and Spherix co-founder Ali Far have pleaded guilty in the Galleon case. Far is a former analyst at Galleon and Lee worked at SAC Capital Advisors; Lee has also said that he began trading on inside information during his stint at SAC.
According to the complaint against Chu, Spherix paid Primary Global for the inside information. Last month, the FBI questioned an unidentified account manager at Primary Global about its hedge fund clients, and the company, which provides expert network services, is reportedly a focus of the investigation.
Primary Global said it has "severed its relationship" with Chu following his arrest. The company said Chu had worked there for about seven years.
The FBI said Chu's arrest was motivated by his plans to leave for Taiwan yesterday. He faces up to 25 years in prison if convicted.
Taiwan's Financial Supervisory Commission said it has not yet been contacted by U.S. authorities about Chu, who served as Primary Global's liaison in the country.
Meanwhile, Balyasny Asset Management, one of the hedge funds under investigation in the broad insider-trading probe, told its investors on Wednesday that it had received a subpoena.
The Chicago-based hedge fund said the government last Monday sought "a broad set of general information for the last few years," adding that it was "quite comfortable with the credibility of our processes and of our employees."
Certainly, Balyasny is in good company, with SAC Capital Advisors and Citadel Investment Group also receiving subpoenas last week. Dozens of hedge funds, among them Jana Partners and TPG-Axon Capital Management, have been subpoenaed during the three-year long investigation.