EXPERT-NETWORKING FIRM EXECUTIVE PLEADS GUILTY TO CONSPIRING TO DISTRIBUTE INSIDE INFORMATION

United States Attorney
Southern District of New York

JUNE 7, 2011 ELLEN DAVIS, CARLY SULLIVAN

PREET BHARARA, the United States Attorney for the
Southern District of New York, announced that DON CHING TRANG
CHU, a/k/a “Don Chu,” pled guilty today to conspiracy charges in
connection with his employment at an “expert-networking” firm
(the “Firm”), during which he arranged for insiders at publiclytraded
companies to provide material, nonpublic information
(“Inside Information “) to the Firm’s hedge fund clients. CHU
pled guilty before U.S. District Judge JED S. RAKOFF.
Manhattan U.S. Attorney PREET BHARARA stated: “Insider
trading was a key part of Don Chu’s business model. He served as
a virtual conduit between experts and hedge funds, enriching his
firm and its clients at the expense of other investors and the
integrity of the market. Today’s guilty plea should serve as
another clear example that anyone who engages in insider trading,
be it a trader, an insider, or any other individual, will be
caught and convicted.”
According to the Information, a Complaint previously
filed in this case, and statements made during today’s guilty
plea proceeding:
CHU served as a liaison for the Firm to consultants and
sources of information in the United States and elsewhere. He
promoted the Firm’s consultation services by arranging for Firm
consultants to provide Inside Information regarding the earnings’
releases of certain public companies to the Firm’s hedge fund
clients. The Inside Information, which was disclosed in
violation of the consultants’ fiduciary and other duties to their
employers, was provided for the purposes of executing profitable
securities transactions.
For example, CHU facilitated a consultation in July
2009 between Richard Choo-Beng Lee, whose hedge fund was a client
of the firm, and an individual (“CC-1”), who worked at a
publicly-traded technology company (the “Tech Company”). The
practice of Lee’s hedge fund was to have its employees call a
Firm consultant before the consultant’s company was expected to
release its quarterly earnings, in part to obtain Inside
Information.
On July 21, 2009, Lee had a consultation with CC-1
during which CC-1 provided Lee with revenue numbers, average
sales prices, unit sales for different product lines, gross
margin figures, and revenue forecasts for the Tech Company.
Later that day, the Tech Company announced its quarterly
earnings. Shortly after the public announcement, Lee called an
employee at the Firm (the “Firm Employee”), telling the Firm
Employee, among other things, that CC-1’s revenue number was
“spot on.”
In April 2009, Lee began to cooperate with the
Government’s investigation, and in November 2009, he pled guilty
to charges of conspiracy and securities fraud.
* * *
CHU, 57, pled guilty to one count of conspiracy to
commit securities fraud (Count One) and one count of conspiracy
to commit wire fraud (Count Two). Count One carries a maximum
sentence of five years in prison, and Count Two carries a maximum
sentence of 20 years in prison. He also faces a maximum fine of
$250,000, or twice the gross gain or loss from the offense on
each conspiracy count. He agreed as part of his plea agreement
to forfeit the proceeds he obtained as a result of the offense.
CHU is scheduled to be sentenced by Judge RAKOFF on
September 7, 2011, at 4:00 p.m.
Mr. BHARARA praised the investigative work of the
Federal Bureau of Investigation. He also thanked the U.S.
Securities and Exchange Commission.
This case was brought in coordination with President
BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which
Mr. BHARARA serves as a Co-Chair of the Securities and
Commodities Fraud Working Group. President OBAMA established the
interagency Financial Fraud Enforcement Task Force to wage an
aggressive, coordinated, and proactive effort to investigate and
prosecute financial crimes. The task force includes
representatives from a broad range of federal agencies,
regulatory authorities, inspectors general, and state and local
law enforcement who, working together, bring to bear a powerful
array of criminal and civil enforcement resources. The task force
is working to improve efforts across the federal executive
branch, and with state and local partners, to investigate and
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prosecute significant financial crimes, ensure just and effective
punishment for those who perpetrate financial crimes, combat
discrimination in the lending and financial markets, and recover
proceeds for victims of financial crimes.
Assistant U.S. Attorneys ANTONIA M. APPS, DAVID
LEIBOWITZ and REED BRODSKY, and Special Assistant U.S. Attorney
ANDREW MICHAELSON, are in charge of the prosecution.
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