Two Guilty Pleas Forthcoming at Tipster Trial

The Justice Department has bagged one guilty plea today, and is on the verge of a second in the ongoing "expert witness" insider trading probe. The guilty plea was rendered by former SAC Capital Advisors manager Donald Longueuil. Talks are underway with Don Ching Trung Chu, who has waived his right to be indicted by a grand jury – a step usually preliminary to a plea deal.

Chu was one of a dozen individuals arrested in the probe of insider trading facilitated by so-called expert networks. Even if he pleads not guilty, the chances are that he will end up with a plea arrangement. Chu's lawyer, James Devita, explained to Bloomberg:

"I don't have a resolution to this case yet. I can tell you that he's not requiring the government to go to a grand jury and obtain an indictment against him, but we have yet to resolve this case and it won't be today."

Chu, out on bail, has received numerous adjournments since his November arrest, a signal of possible plea negotiations. As an expert at Primary Global Research, Chu stands accused of tipping off former SAC trader Richard Choo-Beng Lee regarding several companies. Lee, who has already pleaded guilty, and a former Galleon Group analyst named Ali Far, allegedly used the inside information at their hedge fund, Spherix Capital.

Should Chu plead guilty, that would make him the sixth accused person to do so in the case. Two other individuals are known to be in plea talks: Samir Barai, a hedge fund manager, and Mark Longoria, a former Primary Global consultant.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Rajaratnam Jury Listens To Tapes Again; Drimal Guilty

Craig Drimal

Two days into the blockbuster Galleon insider trading trial jury deliberations, the panel heard nine requested excerpts over a one-hour period. The jury has not rendered any verdict yet, but the tapes may spur the process along. Jurors cannot consult transcripts of the tapes.

The 14-member panel consists of 12 juror and two alternates. The requested tapes included ones featuring prosecution witnesses Rajiv Goel and Anil Kumar. Both claimed to have forwarded inside information to Raj Rajaratnam and his brother Rengan. Another tape featured a conversation between Raj Rajaratnam and Krish Panu, a director at PeopleSoft. Neither Rengan Rajaratnam nor Panu stand accused of any crimes.

On a separate front, Galleon trader Craig Drimal pleaded guilty to insider trading following his unsuccessful attempt to suppress wiretap tapes against him. As we reported, U.S. District Judge Richard Sullivan rejected Drimal's bid to throw out the tapes last week.

His plea, guilty to conspiracy and securities fraud, mark him as the 21^st individual to enter guilty pleas in the case so far. The trial for the remaining four suspects begins on May 16.

Drimal's attorney, JaneAnne Murray, said

"He deeply regrets his actions and is now focused on his future with his wife of 30 years and his three children".

Of course, his deepest regret is having been caught. Drimal will have up to 105 years in the Big House to contemplate his regrets when he receives his sentence on September 9.

Eric Bank, Freelance Writer

SEC Catches Fraudsters Before They Can Strike

Its not every day that a team of hedge fund fraudsters is so spectacularly incompetent that the SEC catches them before any harm is done. But that is exactly what's happened to Elijah Bang and Daniel Lee, whose Beverly Hills hedge fund, IU Group, was shackled before it lined up a single victim. The SEC won an emergency shutdown order against IU Group for what it called "flagrant misrepresentations" to would-be investors. 

Bang and Lee are old pros at fraud. In 2009, California ordered them to stop illegal and fraudulent securities sales. This time, they invented a four-year track record for a one-year-old company, and imbued it with $800 million in non-existent funds and a made-up client list of actors, athletes, producers, academics, physicians, and businessmen. Their current pitch was for Christians: their websites proclaimed them to be "devoted Christians who believe in God, Jesus Christ and the Holy Spirit."

Besides the emergency order stopping their evil plan, the two hapless hoodwinkers face civil and perhaps criminal charges.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

The Week Starts with A Flurry of Activity

Call it Madcap Monday, but today there are several stories vying for attention in the non-stop world of hedge fund crime. Here is a summary:

Galleon Trial

The case is about to go the jury. It was expected that U.S. District Judge Richard Holwell would instruct the jury following the final rebuttal by the prosecution. This after John Dowd, lawyer for Raj Rajaratnam, spent over five hours delivering his closing argument. His basic thesis: Rajaratnam did "nothing wrong." Rajaratnam is looking at decades of hospitality at the Big House should he be convicted.

On another front in the Galleon case, Jason Goldfarb, a lawyer, pleaded guilty on Thursday to securities fraud and conspiracy for his role in buying confidential information from two other lawyers in his firm, Ropes & Gray. Goldfarb can now avoid a trial that was slated for mid-May and that features Zvi Goffer, a former Galleon trader. Arthur Cutillo and Brien Santarlas, the two Ropes & Gray lawyers, have already pleaded guilty to accepting money in exchange for information. Goldfarb is looking at a three-to-four year vacation at the Graybar Hotel when he receives his sentence on August 19.

Petters Ponzi Scheme

David Harrold and Bruce Prevost, of Palm Beach Capital Management, have pleaded guilty to lying to investors about the Thomas Petters Ponzi scheme, only 20 days after their indictment. Both men can be stamping out license plates for the next 20 years following sentencing. Palm Beach is accused of secretly swapping out old Petters promissory notes for new ones. Palm Beach contributed over $1 billion to the Ponzi scheme. Thomas Petters, the ringmaster, will be savoring prison cooking for the next 50 years following his jury conviction.

Amaranth Advisors

Brian Hunter was fined $30 million by the Federal Energy Regulatory Commission (FERC) for trying to manipulate the natural gas futures market. Hunter oversaw the spectacular collapse of the Amaranth Advisors hedge fund four years ago. Hunter is declining to pay, stating his Canadian citizenship and what he terms the FERC's lack of jurisdiction over futures markets. Hunter will appeal FERC's finding that Hunter sold futures "with the intent to depress prices and financially benefit his significant derivatives positions held on other platforms."

The Commodity Futures Trading Commission (CFTC) is suing Hunter over the same charges. Amaranth settled CFTC and FERC charges two years ago by paying a $7.5 sum, but Hunter was excluded from that settlement.

Phidippides Capital Management Ponzi Scheme

He's already doing ten years in prison. Now, Mark Trimble, former hedge fund manager at the Phidippides Capital Management Ponzi hedge fund is looking at decades more of incarceration. Prosecutors are now accusing Trimble of wire fraud, mail fraud and money laundering in connection with ripping-off his bicycle coach and of violating a ban against trading. Trimble apparently invested $111,000 of his coach's money, losing $40,000 in the process. Trimble could spend another 30 years behind bars.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC