4 arrested in insider trading probe centered on hedge funds
Friday, December 17, 2010
A national investigation into insider trading escalated Thursday with the arrest of four executives accused of trafficking in confidential corporate information as a fifth man pleaded guilty in the case.
Those arrested by the Justice Department and FBI included several figures suspected of channeling secrets from technology companies to hedge funds that then traded on that information but did not include any big names from Wall Street or corporate America.
Investigators are looking at "expert networks," firms that connected corporate insiders with hedge fund executives. They have focused on Primary Global Research, a California-based firm.
"A corrupt network of insiders at some of the world's leading technology companies served as so-called consultants who sold out their employers by stealing and then peddling their valuable inside information," Preet Bharara, the U.S. attorney in Manhattan, said in a statement.
A number of high-profile hedge funds - including SAC Capital Advisors, led by billionaire investor Steven A. Cohen - are being investigated as part of the probe. Several hedge funds have been raided by the FBI or received subpoenas seeking information, but no hedge fund executives have been arrested or charged.
Thursday's arrests come at a time of public hunger for high-profile prosecutions related to the financial crisis. But while targeting financial wrongdoing, these arrests do not appear to have any connection to the crisis.
The Justice Department also recently promoted "Operation Broken Trust," a group of unrelated and relatively small investment fraud cases.
The probe that led to Thursday's arrests has underscored the government's desire to crack down on what Bharara has called "rampant" insider trading. But it also highlights the legal gray area that many lawyers say exists under insider trading statues. Many in the financial industry say that the transfer of information from people intimately familiar with companies to traders is common and doesn't violate any law.
One of those arrested by the FBI on Thursday morning was James Fleishman, an executive at Primary Global Research. He was charged with wire fraud and conspiracy to provide confidential corporate information.
Several of the executives hired as consultants by Primary Global Research were also arrested and charged with wire fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud.
These included Mark A. Longoria, who had worked for chip maker Advanced Micro Devices; Walter Shimoon, who had worked for electronics manufacturing firm Flextronics International, and Manosha Karunatilaka, who had been with Taiwan Semiconductor Manufacturing.
Daniel Devore, formerly an executive with computer giant Dell who had consulted for Primary Global Research, pleaded guilty to wire fraud and conspiracy to commit wire fraud and securities fraud.
The charges against the five people Thursday follow the late November arrest of Don Ching Trang Chu, who had worked as Primary Global Research's Taiwan liason for seven years. Chu's attorney has not indicated whether he will plead not guilty or guilty.
An attorney for Fleishman did not return a call seeking comment. An attorney for Longoria said his client has been cooperating with the investigation. An attorney for Shimoon could not be immediately identified. An attorney for Karunatilaka said he was reviewing the criminal charges facing his client. An attorney for Devore declined to comment.
A spokesman for Primary Global Research said the company had put Fleishman on leave and had severed relationships with the others arrested earlier this year.