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Large sums of money paid to some consultants charged in the government’s insider-trading case indicate they may have talked with dozens of hedge funds, suggesting the scope of the investigation could widen significantly, people familiar with the expert-network industry say.

The U.S. recently has filed criminal charges against seven consultants and employees at an expert-network firm as part of its insider-trading probe. These firms connect hedge funds and other investors looking for an edge with employees at U.S. companies in exchange for a fee.

These moonlighting consultants received as much as $200,000 each to provide information about technology companies that the government alleges included inside information, according to the government complaints. Investigators wiretapped at least two of the defendants’ phones, so they could have eavesdropped on many of hundreds of conversations with hedge funds, people familiar with the situation say.

The details of the pay arrangements underline how lucrative the expert-network business has become in recent years, and how it could have provided the incentive to pass along sensitive information.

Many hedge funds and investors typically pay an hourly rate of $1,000 on average for calls with the consultants, people in the business say. Consultants typically receive $350 or more an hour, leaving the remainder of $650 or so an hour for the expert-network firms, people in the business say. At that rate, a consultant would have to make more than 500 calls with investors to receive $200,000.

The pay details come as more charges are expected as early as this week in the burgeoning insider-trading case, this time including hedge fund employees, according to people familiar with the matter. So far, the U.S. has charged five consultants and two employees at Primary Global Research LLC, a Mountain View, Calif., expert-network firm, with being involved with an alleged insider trading scheme. Primary Global declined to comment.

Manhattan U.S. Attorney Preet Bharara has called insider trading “pervasive” and has said such arrangements with consultants point to a “corrupt network” in which company insiders at technology companies “sold out their employers by stealing and then peddling” information.

On Dec. 29, the government announced charges of securities fraud and conspiracy to commit securities fraud against Winifred Jiau, a California technology contractor. The complaint alleged that Ms. Jiau was paid $200,000 between September 2006 and December 2008 by hedge funds through Primary Global, in exchange for providing information about technology companies that the government alleges included inside information.

Ms. Jiau’s consulting pay suggests she may have spoken with dozens of hedge funds, in hundreds of phone calls over the more than two-year period, people in the business say.

Ms. Jiau also worked for expert-network firms Guidepoint Global Advisors and Vista Research, where she also spoke with a number of hedge funds, a person close to the situation says. It isn’t clear when she worked for those firms. Vista was acquired by Guidepoint in 2009. Guidepoint declined to comment.

FBI agents had approached Ms. Jiau before her arrest and said that they wanted her to be a cooperating witness, according to a person familiar with the matter.

Ms. Jiau, who is in a San Francisco Bay area jail, said in a telephone interview last week she was seeking a lawyer to help her get out and represent her. She declined to comment on her work with Primary Global.

With an army of consultants making calls with its hedge fund and mutual-fund clients, Primary Global has boosted its income. The firm last year estimated its annual revenue at $20 million to $25 million, before inquiries into the company became public, a person familiar with the situation says.

That made Primary Global the No. 5 expert-network firm by revenue last year, according to Integrity Research Associates LLC, a New York firm that tracks independent research providers. Integrity estimates expert-network clients spent about $400 million on consultants last year.

Some hedge funds pay even steeper fees for the services through “subscription fees,” which can run as high as $500,000 to $1 million a year for “premium” services. Such services can include extensive or unlimited access to calls and information from consultants, hedge fund managers say.

One unnamed hedge fund the government alleges was a recipient of inside information paid Primary Global more than $310,000 in 2008 and 2009, according to a complaint against three consultants and one employee of Primary Global.

Already, dozens of hedge funds and mutual funds have been asked to provide trading records in connection with the investigation, according to people familiar with the matter.

One hedge fund raided by the FBI, Diamondback Capital Management LLC, told investors it put a portfolio manager on leave following the raid and later told clients that investigators, in a search warrant issued to the firm, appeared to be focused on that portfolio manager and a former employee who had worked under him.

The portfolio manager is Todd Newman, who oversaw technology investments, and the former employee is Jesse Tortora, according to people familiar with the matter. Mr. Tortora left Diamondback early last year, saying he was going to work on the West Coast, people familiar with the matter say. Diamondback declined to comment; Messrs. Newman and Tortora couldn’t be reached. No charges have been brought against either of them.

Another consultant for Primary Global—Daniel DeVore, who has pleaded guilty to charges of wire fraud, and conspiracy to commit wire fraud and securities fraud in connection to the investigation—received $145,000 for talking with hedge funds about Dell and other companies, according to a charging document against him.

A lawyer for Mr. DeVore, a former employee of Dell Inc., didn’t return calls for comment. A Dell spokesman said the company’s conduct code prohibits employees from disclosing confidential information, and Dell is cooperating with investigators.

In a hearing where he pleaded guilty before a federal judge on Dec. 10, Mr. DeVore said that his hourly rate from Primary Global was $250 to $300 an hour, according to the transcript.

Another consultant charged with wire fraud, and conspiracy to commit wire fraud and securities fraud in the case, Mark Anthony Longoria, was paid $700 for two calls in July 2009, right before Advanced Micro Devices Inc. announced earnings, according to the complaint against him, indicating he earned $350 an hour. Between January 2008 and March, 2010, Mr. Longoria was paid $200,000 by Primary Global for consultation services, the complaint says. Mr. Longoria’s lawyer didn’t return calls.

AMD has said it appears the company is a victim of the insider trading scheme and it is cooperating with investigators.

Primary Global employees surveyed his work and found Mr. Longoria had made 40 calls in 60 days, with 12 out of 15 clients speaking to him more than once, according to the complaint.

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

 

Centaurus Energy Master Fund LP, a Houston-based energy hedge fund run by former Enron Corp. trader John Arnold, was fined $15,000 by New York Mercantile Exchange for violating position limits in natural gas.

Centaurus exceeded limits for the expiring December 2010 Henry Hub Natural Gas Look-Alike Last Day Financial Future on Nov. 24, Nymex said in a disciplinary action published today. It’s the fund’s third position limit violation in 24 months, Nymex said.

The fund had 5,005.5 short contracts, 5.5 over the limit. The infraction resulted in a $15,000 fine and a disgorgement of $4,015 in profits, the exchange said.

The Centaurus Energy Master Fund, founded in 2002, had $5 billion under management and more than 70 employees and focuses on electricity and natural gas trading, Arnold told regulators on August 2009.

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

On Jan. 6, 2011, the Securities and Exchange Commission filed a civil injunctive action in U.S. District Court for the Northern District of Georgia, charging Stanley J. Kowalewski (Kowalewski) and SJK Investment Management, LLC (SJK), a registered investment adviser, with violations of the federal securities laws for defrauding investors in two hedge funds managed by SJK.

The Commission’s Complaint alleges that, beginning in the summer of 2009, SJK and Kowalewski, the firm’s CEO, raised a total of $65 million for two hedge funds (the Absolute Return Funds) and represented to investors that: (1) “substantially all” of the monies invested in the Absolute Return Funds would be invested in “unaffiliated” underlying hedge funds pursuing complex investment strategies, (2) no single underlying fund would be allocated more than 15% of the Absolute Return Funds’ monies, and (3) as compensation for its services, SJK would receive no more than a 1% annual asset management fee and a 10% profits incentive fee. Contrary to these representations, Kowalewski and SJK formed a new, undisclosed fund (the Special Opportunities Fund), which they used to divert to themselves millions of dollars through various self-dealing transactions, including having the Special Opportunities Fund: (1) buy Kowalewski’s personal home for $2.8 million, almost $1 million more than its 2006 purchase price, (2) purchase a vacation home for Kowalewski for $3.9 million, (3) pay approximately $1 million of Kowalewski and SJK’s personal and business expenses, and (4) pay SJK an unfounded $4 million “administration” fee, which Kowalewski then paid himself as a “salary draw.”

In its Complaint, the Commission alleges that Kowalewski and SJK violated Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act (Advisers Act) and Rule 206(4)-8 thereunder.

On Jan. 6, 2011, the Honorable Timothy C. Batten, Sr., United States District Judge for the Northern District of Georgia, entered an order temporarily restraining the defendants from violations of the federal securities laws identified above, instituting an asset freeze, and ordering other relief. [SEC v. Stanley J. Kowalewski and SJK Investment Management, LLC, Civil Action No. 1:11-cv-0056-TCB, USDC, ND Ga.] (LR-21800)

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

Snippets of secretly taped conversations from the U.S. government’s latest hot case ring with a certain familiarity.

“The service we provide is, you know, whatever you’re looking for,” a newly charged criminal defendant says to a client, unaware he’s being recorded.

What’s this? A sales pitch for the Emperor’s Club? It sounds like recordings from Eliot Spitzer’s favored sex ring, revealed in 2008 and knocked Spitzer from the governor’s office.

The club offered its customers whatever they wanted, too: blond, brunette, “that model look” or “a little curvier,” the booker was taped as saying.

This time, it’s not a call-girl conspiracy outfit but an alleged insider-trading scheme. People working for Primary Global Research LLC, a Mountain View, California-based expert network for hedge funds and wealth managers, allegedly gave the same sort of service the Emperor’s Club offered: confidential, high-quality and illegal.

James Fleishman, a sales manager for the firm, stands accused of matching hedge funds looking for inside information with insiders willing to sell it.

Whether the fund manager wanted long-term outlook or short- term figures, Fleishman is heard to say, Primary Global could hook him up with just the right consultant. Often, the expert was conveniently working full time in a key position at a high- tech company while getting paid thousands of dollars a year on the side to talk with hedge-fund managers, the government says.

Private Contact

The research firm never gives customers the names of its consultants, Fleishman says in one recorded conversation. And it offers the client one-on-one, totally private contact with its experts. That sounds familiar, too.

Primary Global’s stated policy forbids illegal activity between client and expert. No proprietary or confidential information given out. No breaking a company’s rules against its employees revealing inside knowledge. No talking about the consultant’s current employer.

But if the government’s recent criminal charges against two Primary Global employees and four consultants hold up, the policy was enforced as strictly as an escort service’s claim that the women it hires out for companionship always keep their clothes on.

A 39-page criminal complaint unsealed last month naming Fleishman and three of the firm’s insider consultants contains a litany of apparent insider disclosures.

Apple’s Secrets

As insiders, these experts are accused of giving out such sought-after tips as the number of next-generation iPhones that Apple Inc. was putting into production in 2009.

That consultant, Walter Shimoon, had access to Apple’s secrets while working as senior business-development director for Flextronics International Ltd., a Singapore-based company making cameras for Apple devices, according to the complaint.

Another consultant, Mark Anthony Longoria, worked at Advanced Micro Devices Inc. He is accused of divulging revenue numbers just hours before AMD’s quarterly earnings reports. So popular with Primary Global customers was “Tony L.” that he took 40 calls from 15 clients within a 60-day period, according to the complaint.

And what was said in those calls stayed in those calls. At least that’s what those involved thought.

‘We Don’t Record’

“We don’t record, um, or monitor your call between you and your clients,” a Primary Global manager told Shimoon in November 2009. The manager, unidentified in the complaint, was trying to reassure a shaken Shimoon after the feds busted Raj Rajaratnam, the co-founder of hedge fund Galleon Group LLC, on the basis of phone taps.

“That would really suck if you recorded all the calls,” Shimoon said into a phone tapped by the Federal Bureau of Investigation. You can almost hear eavesdropping agents chortling over that one.

Given the similarities, you might expect that company insiders would demand high fees for their valuable service and the risk of discovery.

The Emperor’s Club charged clients between $1,000 and $5,000 per encounter, depending on how highly customers rated the women.

And that was just for sex. One encounter with a Primary Global consultant helped land one hedge fund a tidy $820,000 profit on a trade, according to a federal complaint in a related case.

How much would you pay for learning a day in advance whether a major technology company was going to report earnings substantially above forecasts?

Pay Per Call

An insider at Taiwan Semiconductor Manufacturing Co., Manosha Karunatilaka, told the FBI that Primary Global paid him a mere $200 per call, according to the government.

Over time, a popular consultant could earn a few thousand bucks, some as much as $100,000 a year by selling insider tips, the government claims. Not bad for part-time work, perhaps.

But unlike the women hired out by the now-defunct Emperor’s Club, what these experts sold was worth less, the more they spread it around.

If everyone were let in on their secrets at the same time, they wouldn’t be secrets. We would call that a fair market.

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

Former Primary Global Research LLC expert networking consultant Winifred Jiau, arrested in a Justice Department insider trading probe, must wait until Jan. 3 to renew her bid for bail, a federal magistrate judge said.

U.S. Magistrate Judge Nandor Vadas in San Francisco decided after granting Jiau $250,000 bail yesterday that she must remain in custody because her surety failed to appear in court.

Jiau, arrested Dec. 28 in Fremont, California, was accused of selling data on Nvidia Corp. and Marvell Technology Group Ltd., makers of computer components, to portfolio managers at three unidentified hedge funds through Primary Global, according to a filing in Manhattan federal court. The hedge funds paid Jiau $200,000 through the networking firm, prosecutors said.

Assistant U.S. Attorney Wilson Leung argued at a hearing yesterday that Jiau should stay in jail, saying she has incentive to flee now that she’s been charged. Jiau, 43, faces one count each of conspiracy to commit securities fraud and securities fraud and, under sentencing guidelines, she may be sent to prison for 57 months to 63 months if convicted, Leung said.

Vadas initially granted Jiau bail and ordered her to give up her U.S. and Taiwan passports and submit to electronic monitoring. Later in the day, Vadas changed his mind after the friend who was supposed to provide collateral for Jiau’s bond failed to appear and Leung said he would ask a U.S. district judge in New York to block the defendant from being released.

Expert Consultant

Marilyn Gerber, a spokeswoman for Primary Global, said in an e-mailed statement that Jiau served as an “expert consultant” with the company from September 2006 to December 2008, declining further comment.

Jiau was the fifth Primary Global consultant arrested in an insider-trading crackdown led by the office of Manhattan U.S. Attorney Preet Bharara that also generated criminal charges against two other employees of the company. One of the consultants, former Dell Inc. supply chain manager Daniel DeVore, pleaded guilty Dec. 10.

Expert-networking companies such as Mountain View, California-based Primary Global match investors with specialists who provide insight into specific markets.

Leung called Jiau a “flight risk” yesterday, telling Vadas that FBI agents heard Jiau’s car running and found luggage in her house when they arrived to arrest her.

Agents Stopped Her

Jiau’s attorney, Mark Goldrosen, said at today’s hearing she didn’t attempt to evade Federal Bureau of Investigation agents who came to arrest her. He said she was coming out of her garage when the agents stopped her and that she didn’t hear them knocking on her front door. She stopped immediately and cooperated with them. The luggage they found in her apartment wasn’t packed, he said.

Goldrosen said she has known about the insider trading investigation since mid-December, was aware that others were arrested and didn’t attempt to flee since then.

The attorney described Jiau as a self-employed commodities trader with a graduate degree from Stanford University who has lived in the San Francisco Bay area for almost 18 years.

Jiau was told to come back to court Jan. 12 for a hearing on whether she will be sent to New York to face the charges. Goldrosen said outside court he didn’t yet know whether she would fight the effort to return her to New York.

A confidential informant listened to conversations among Jiau and two hedge fund representatives in which she allegedly provided confidential information of Marvell prior to company announcements, the FBI said.

Marvell, Nvidia

Jiau is accused of providing details of Marvell’s and Nvidia’s public earnings announcements for the first two fiscal quarters of 2008 prior to their public release, according to the FBI.

Jiau passed information to a hedge fund portfolio manager who purchased 118,000 shares of Marvell on May 23, 2008, and an additional 300,000 shares, as well as call options, on May 29, 2008, according to the affidavit.

The portfolio manager’s firm, identified as “Hedge Fund A,” sold its entire position the following day and “netted a profit of over $820,000,” the government said.

The case is U.S. v. Jiau, 10-2900, U.S. District Court, Southern District of New York (Manhattan).

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

 

 

 

Steven Rattner, the hedge fund industry grandee who was last year appointed by the Obama administration to oversee the restructuring of the car industry, has agreed to pay $10m to settle lawsuits over his role in a bribery scandal. 

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Officials at the New York state employees’ pension fund funnelled business to investment managers who agreed to pay kickbacks, and Mr Rattner was accused of funding the distribution of a low-budget movie made by the brothers of the fund’s chief investment officer, and paying “sham fees” to an agent working on behalf of the fund, according to two lawsuits filed by the New York Attorney General, Andrew Cuomo.

In return, Quadrangle, MrRattner’s former fund, was given a $150m investment from thepension fund.

Mr Rattner has also agreed to be banned from appearing in any capacity before any public pension fund in New York for five years, it emerged last night.

Last month, Mr Rattner agreed to settle similar claims brought by the Securities and Exchange Commission, paying $6.2m to end those cases. He stepped down from his auto industry role – where he was known as the “car tsar” – in July.

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

A former Primary Global Research LLC expert-networking consultant was charged by U.S. prosecutors in Manhattan with selling inside information to portfolio managers at three unidentified hedge funds.

Winifred Jiau, arrested in Fremont, California, as part of a national probe of insider trading, was accused of selling data on Nvidia Corp. and Marvell Technology Group Ltd., makers of computer components, through Primary Global, according to a filing yesterday in Manhattan federal court. The hedge funds paid her $200,000 through the firm, prosecutors said.

Jiau, 43, is the seventh person connected to Primary Global to be charged in a U.S. insider trading investigation that has ensnared company employees and consultants.

The Jiau complaint shows prosecutors are gathering evidence of alleged insider trading against hedge fund employees. The probe became public last year with the arrest of Galleon Group LLC hedge fund co-founder Raj Rajaratnam. The FBI recorded thousands of conversations during their investigation of the firm, lawyers said at an October hearing. Rajaratnam, who denies the charges, is scheduled to go on trial in Manhattan next year.

Jiau is charged with one count each of conspiracy to commit securities fraud and securities fraud. She appeared yesterday in San Francisco federal court and was ordered held in custody by U.S. Magistrate Judge Nandor Vadas, who set a hearing for Jan. 12 on whether to transfer her to New York. She is scheduled to appear today to seek release on bail.

‘Strong’ Evidence

The evidence against Jiau is “strong,” Assistant U.S. Attorney Wilson Leung told the judge, adding that there is a “cooperating witness and audio recordings.” When asked by Vadas if she understood the charges, Jiau said “I not have a chance to know until now.” Barry Portman, her assigned public defender, said the complaint is a “lengthy document.” The first count carries a maximum sentence of 20 years in prison.

Prosecutors claim Jiau began getting paid for insider information in September 2006.

In May 2008, Jiau separately gave two hedge fund portfolio managers, one of whom worked for two hedge funds, “on point and accurate” data about the quarterly financial results at Marvell before it was released to the public, prosecutors said. One of the funds netted more than $820,000 in profits based on that inside information, the FBI said.

Jiau also gave quarterly financial data in August 2008 about Marvell to the same two managers, referred to as CC-1 and CC-2 in the complaint.

Inside Data

CC-1 founded a New York entity referred to as Hedge Fund A and CC-2 worked at two separate hedge funds, according to the complaint. A cooperating witness who pleaded guilty, CW-1, began working as a research analyst at Hedge Fund A in March 2008, the FBI said in court papers.

CC-1 told the cooperating witness to get inside data from various co-conspirators, including Jiau, the FBI said. She gave inside information to CC-1 and CC-2, and the cooperating witness listened to their conversations about Marvell, the FBI said.

CC-1 also recorded conversations with Jiau, and the complaint quoted Jiau in conversations about Marvel’s second- quarter earnings that the company announced on Aug. 28, 2008.

When CC-2 asked if she had data yet on the next quarter, she said: “As soon as I get it, I give you guys a buzz,” according to court papers.

CW-1 “understood that Jiau obtained the information about Marvell and Nvidia from a source who was not authorized to disseminate” it, according to the complaint.

‘Expert Consultant’

Marilyn Gerber, a spokeswoman for Primary Global, said in an e-mailed statement that Jiau served as an “expert consultant” with the company from September 2006 to December 2008, declining further comment.

Jiau was the fifth Primary Global consultant arrested in an insider-trading crackdown that also has led to criminal charges against two other employees of the company. One of the consultants, former Dell Inc. supply chain manager Daniel DeVore, pleaded guilty Dec. 10.

On Dec. 16, Federal Bureau of Investigation agents arrested three technology company workers who allegedly sold secrets about Apple Inc., Dell and Advanced Micro Devices Inc. The men, who worked at AMD, Flextronics International Ltd. and Taiwan Semiconductor Manufacturing Co., were arrested on securities fraud and conspiracy charges for a scheme that Manhattan U.S. Attorney Preet Bharara said operated from 2008 to early 2010.

James Fleishman, a sales manager at Primary Global, also was arrested the same day as the three men. If convicted, all four face as long as 20 years in prison.

Leaked Information

DeVore pleaded guilty to conspiracy to commit securities fraud and wire fraud. He said he worked as a paid consultant for Primary Global and, through the firm, accepted money from hedge funds for inside information. At his plea hearing, he said he leaked inside information to clients of Primary Global and New York-based consulting firm Guidepoint Global LLC, according to a transcript.

James Fingeroth, a spokesman for Guidepoint Global in New York, declined to comment yesterday.

The expert-network arm of the Galleon probe was revealed last month with the execution of search warrants at hedge funds on Nov. 22, and the Nov. 24 arrest of Don Ching Trang Chu, another Primary Global employee.

FBI Agents

FBI agents from New York and Boston executed warrants at the offices of Level Global Investors LP and Diamondback Capital Management LLC, hedge funds founded by alumni of SAC Capital Advisors. Agents that day also executed a search warrant at the offices of Loch Capital Management. None of the firms or their employees has been accused of any wrongdoing.

Expert-networking companies such as Mountain View, California-based Primary Global match investors with specialists who provide insight into specific markets. Prosecutors in the case have described in criminal complaints the links among Primary Global, the technology experts it employed and unidentified hedge funds willing to pay for inside information.

Santa Clara, California-based Marvell, which makes chips for the BlackBerry phone, declined to comment on Jiau’s arrest. Bob Sherbin, a spokesman for Nvidia, also based in Santa Clara, said Jiau was a contractor who left the company a year ago, declining further comment.

Lawsuit

A Winifred Jiau filed a sexual-harassment lawsuit against her former employer, San Francisco-based Adteractive Inc., in 2007. The complaint said she has an undergraduate degree from National Taiwan University and a Master’s degree in statistics from Stanford University. The plaintiff in the lawsuit matches the age and northern California residence of the Winifred Jiau charged by prosecutors.

Jiau founded a company that got funding from Intel Corp., according to the lawsuit. In the suit, filed in California Superior Court in San Francisco, the plaintiff claimed she worked as a senior statistician for Adteractive from April to July of 2006, when she was fired after refusing the alleged sexual advances of a supervisor.

According to the civil suit, the plaintiff had “over ten years of work experience building financial and economic models” and she “started her own company that was funded by Intel.”

The case was dismissed on Dec. 29, 2008, after the filing of a notice of a confidential settlement, according to court records. An Adteractive attorney, Aryn Pedowitz, declined to immediately comment on the case.

Theo Emison III, a lawyer who filed the civil suit, said he was unable to say whether his former client is the woman charged yesterday.

Wiretap Recordings

Recorded and wiretapped conversations have been at the center of the Galleon probe and its various arms. Investigators made consensual and wiretap recordings of an unidentified expert-networking firm’s phones, the land lines of an unidentified hedge fund and the mobile phones of two of the men arrested Dec. 16 — Mark Anthony Longoria, who worked at chipmaker AMD, and Walter Shimoon, formerly of Flextronics, a Singapore-based maker of electronic components — the U.S. said.

At least two hedge funds are described in the complaint against the men. Neither is identified by name.

The U.S. also made consensual recordings using five cooperating witnesses, had a tap on mobile phones used by Shimoon and Longoria, and recorded conversations at Primary Global in November 2009, a month after Rajaratnam’s arrest, according to court papers.

One Witness

Court papers indicate at least five people have been working with the government in the insider-trading probe. Only one witness was identified by name: Richard Choo-Beng Lee, a former partner at San Jose, California-based hedge fund Spherix Capital LLC. He began cooperating with the U.S. in April 2009, according to court records, providing information to Bharara’s office in the government’s case against Galleon. He pleaded guilty in November 2009.

His partner at Spherix, Ali Far, who also worked as an analyst and portfolio manager at Galleon, pleaded guilty and is aiding the U.S. in the Galleon probe.

The U.S. said Chu established a relationship with Lee and that Spherix paid Chu’s firm, Primary Global, for tips concerning Atheros Communications Inc., Broadcom Corp. and Sierra Wireless Inc., according to the government’s complaint.

At yesterday’s court hearing in San Francisco, Portman told the judge that Jiau is a U.S. citizen and has known about the insider-trading investigation since mid-December. She didn’t attempt to flee when FBI agents arrived at her home, the lawyer said in his argument that she be released.

Leung countered that Jiau is a “flight risk,” and that when agents went to her house, they heard her car running in an attempt to drive off. Leung said the agents found packed luggage inside her house.

Leung said that Jiau claimed she had just returned from a trip to Asia. The prosecutor said her Asia trip took place in October, and that she had traveled to Beijing and returned through Taiwan.

The case is U.S. v. Jiau, 10-Mag.-2900, U.S. District Court for the Southern District of New York (Manhattan).

To contact the reporters on this story: Bob Van Voris in U.S. District Court, Southern District of New York in Manhattan at rvanvoris@bloomberg.net; Pamela MacLean in U.S. District Court, Northern District of California in San Francisco; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

The Securities and Exchange Commission is extending the compliance date for Part 2B of Form ADV, the brochure supplement, and for certain rule provisions that relate to the delivery of brochure supplements. The Commission is extending the compliance date generally for four months to provide certain investment advisers additional time to design, test and implement systems and controls to satisfy their obligations to prepare and deliver brochure supplements.

In summary, the effective date for amendments to Part 2 of Form ADV and related rules under the Advisers Act remains October 12, 2010. The compliance date for Form ADV, Part 2B and the provisions of rule 204-3 concerning the delivery of brochure supplements is extended generally for four months as described in the Supplementary Information section.

On July 28, 2010, the Commission adopted amendments to Part 2 of Form ADV [17 CFR 279.1], and related rules under the Investment Advisers Act of 1940 [15 USC 80b] (”Advisers Act”),1 to require registered investment advisers to provide clients with a brochure and brochure supplements written in plain English (”Adopting Release”). The brochure contains information about the advisory firm, whereas the brochure supplement contains information about the advisory personnel on whom clients rely for investment advice.

When we adopted amendments to Form ADV last July, we established two separate compliance dates for delivering brochure supplements. New investment adviser registrants, i.e., those that apply for registration on or after January 1, 2011, would begin providing brochure supplements to clients upon registering. Existing investment adviser registrants would provide brochure supplements to new and prospective clients upon filing their annual updating amendment to Form ADV for fiscal year ends beginning on December 31, 2010, and to existing clients within 60 days of filing the annual updating amendment. Most registered advisers have fiscal years ending on December 31 and must, as a result, file an annual updating amendment by March 31, 2011.3 Absent an extension of the compliance date, these advisers would be required to deliver their first brochure supplements to new and prospective clients no later than March 31, 2011 and to existing clients no later than May 31, 2011.

We have received correspondence from the Securities Industry and Financial Markets Association (”SIFMA”), requesting that we delay the compliance date for at least an additional four months, until July 31, 2011, solely with respect to requirements regarding delivery of the brochure supplement.4 SIFMA asserts that preparing and disseminating brochures with respect to thousands of supervised person to tens of thousands of clients presents its members with substantial logistical challenges in meeting the compliance date. It asserts that its members need additional time to design, test and implement systems and controls that will assure that each client receives an accurate brochure supplement with respect to the supervised person who provides advice to that client.

Based on the concerns expressed in the correspondence, and in light of similar concerns that have been expressed by other investment advisers to our staff, we are persuaded that a limited extension of the compliance date for the delivery of brochure supplements for existing registered advisers is appropriate. We have based this decision on the information SIFMA has provided and our experience in overseeing the industry. (Note: The North American Securities Administrators Association has recommended that the state securities authorities provide the same extension for state-registered investment advisers. However, state-registered advisers should contact the states where they are registered to confirm compliance dates).  In addition, to provide consistent treatment for newly registering advisers, we are also persuaded that the limited extension of the compliance date for the delivery of brochure supplements is appropriate for these advisers as well. We are not extending the compliance date for the filing and delivery of the brochure required by Part 2A of Form he Advisers Act, which is required for newly registering investment advisers beginning on January 1, 2011, and for existing registered advisers when they file their annual updating amendments for fiscal years ending on and after December 31, 2010.

Accordingly, the Commission believes it is appropriate to modify and extend the compliance date for brochure supplements for the following investment advisers:

Existing Registered Investment Advisers. All investment advisers registered with the Commission as of December 31, 2010, and having a fiscal year ending on December 31, 2010 through April 30, 2011, have until July 31, 2011, to begin delivering brochure supplements to new and prospective clients. These advisers have until September 30, 2011 to deliver brochure supplements to existing clients. The compliance dates for delivering brochure supplements for existing registered investment advisers with fiscal years ending after April 30, 2011 remain unchanged.

Newly-registered Investment Advisers. All newly registered investment advisers filing their applications for registration from January 1, 2011 through April 30, 2011, have until May 1, 2011 to begin delivering brochure supplements to new and prospective clients. These advisers have until July 1, 2011 to deliver brochure supplements to existing clients. The compliance dates for delivering brochure supplements for newly-registered investment advisers filing applications for registration after April 30, 2011 remain unchanged.

The Commission finds that, for good cause and the reasons cited above, including the brief length of the extension we are granting, notice and solicitation of comment compliance date for Part 2B of Form ADV and the provisions of rule 204-3 that relate to the delivery of brochure supplements are impracticable, unnecessary, or contrary to the public interest.  In this regard, the Commission also notes that investment advisers need to be informed as soon as possible of the extension and its length in order to plan and adjust their implementation process accordingly.

http://www.sec.gov/rules/final/2010/ia-3129.pdf

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers

On Dec. 23, 2010, the U.S. District Court for the Southern District of New York entered a Temporary Restraining Order freezing assets and trading proceeds of certain One of More Unknown Purchasers of Options of InterMune, Inc. (Unknown Purchasers) and prohibiting the Unknown Purchasers from disposing of the options or any proceeds from the sale of the options. The Commission filed a complaint alleging that the Unknown Purchasers engaged in illegal insider trading in call options of InterMune between December 7 and Dec. 13, 2010, prior to the public announcement on December 17 that one of InterMune’s development drugs, Esbriet, had been recommended for approval by the European Union’s Committee for Medicinal Products for Human Use (CHMP). InterMune is a biotechnology company headquartered in Brisbane, California focused on developing and commercializing innovative therapies in pulmonology and hepatology. Its common stock is listed on The NASDAQ Stock Market (symbol: ITMN). The options at issue traded on the Chicago Board Options Exchange and the Philadelphia Stock Exchange. The Commission’s complaint alleges that the Unknown Purchasers, through their insider trading, violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctive relief, the disgorgement of all illegal profits, and the imposition of civil monetary penalties.

The Complaint alleges that the Unknown Purchasers bought a total of 637 call options contracts. According to the Complaint, the purchases on December 7 and 8, 2010 of four hundred of the option contracts cleared through UBS Securities LLC and the option contracts are currently held by UBS Securities LLC or UBS Securities Ltd. The Complaint further alleges that the options purchased comprised 100% and 57.2%, respectively, of the volume of transactions in the options series over these two days of trading. According to the Complaint, the purchases on Dec. 13, 2010 of the remaining 237 options contracts cleared through Barclays Capital in New York and the options contracts are currently held by Barclays Capital. The Complaint further alleges that the options purchased comprised approximately 66% of the volume in the series over that day’s trading.

The Complaint alleges that, after the announcement of CHMP’s recommendation, the price of InterMune’s stock rose materially, approximately 144%, and the prices of the InterMune options at issue increased by as much as 466%. The Complaint further alleges that, as a result, the Defendant Unknown Purchasers were in a position to realize total profits of approximately $912,000 from the sale of their calls following the announcement. [SEC v. One or More Unknown Purchasers of Options of InterMune, Inc., 10 Civ. 9560 (GBD) (S.D.N.Y.)] (LR-21794)

Posted by Carmine Angone, Director, ICS Compliance - Confidence in Compliance for Hedge Fund Managers, Investment Advisors and Broker-Dealers