Don Chu is small fry

By Felix Salmon
November 24, 2010
complaint.pdf in the Don Chu case, a couple of things jump out at you. One is how modestly Chu was paid, for someone conspiring with hedge funds to reap a fortune from inside information:

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

If you read the complaint in the Don Chu case, a couple of things jump out at you. One is how modestly Chu was paid, for someone conspiring with hedge funds to reap a fortune from inside information:

The Firm pays CHU $6,000.00 per month and covers his expenses.

Another is how obvious — you might even say ingenuous — Chu’s dissemination of inside information seems to be:

On or about June 19, 2009, at approximately 6:52 a.m., CHU sent Lee an email message. The subject line of the email message stated: “Just in…” The message stated: “ATHR [Atheros]: Q2 [second quarter] better than expected, over 105M. GM [gross margins] ok. Q3 [third quarter] internal target at 123M [million dollars], guidance pending ?115 [million dollars] or so? will be aggressive in the pc/nb [personal computer/notebook] ASP [average sales price] to stop competitors. Hopes to maintain GM on (1) Nintendo shipment back in and (2) new 65 nm 11n chip[.] Q4 [fourth quarter] likely has GM under pressure with ASP expected even bloodier. Have fun!” From my involvement in this investigation, including my discussions with Lee, my review of publicly available reports, and my training and experience, I believe that CHU in this email was providing Inside Information about Atheros. I also know that the kind of information being disclosed in this message, including revenue and gross margin information, is not publicly disclosed prior to announcements by the company. I believe that, at the time of this email message, Atheros had not yet reported results for its fiscal quarter ending in June 2009 (or, “Q2″), and that it was expected to do so after the close of the market on July 21, 2009. I have also reviewed CHU’s cellular call data, and I have learned that on or about June 18, 2009, at approximately 7:35 a.m, there was a 2-minute call between CHU and a person utilizing a Taiwanese telephone number.

This is dense stuff, but basically, if you take this at face value, Chu called Taiwan on June 18, and got a bunch of inside information about Atheros’s second quarter. He then emailed Lee — that’ll be CB Lee, a cooperating witness who worked at a hedge fund at the time and who once worked for SAC Capital — on June 19 with the information. The actual second-quarter results were then released on June 21.

But here’s where things get weird: if you look at the highly detailed four-page press release announcing Chu’s arrest, there’s no mention of the email from Chu to Lee. Instead, the release concentrates on what would seem to be a much weaker part of the case against Chu — a conversation between Lee and another insider. Inside information does seem to have been imparted to Lee on that call, but not by Chu, who wasn’t on the call.

And while there is evidence that Chu knew he was dealing in inside information, there’s also evidence that Chu was careful to try to find untraceable methods to impart that information. Which stands in stark contrast to the idea that he would simply plop lots of inside information into an email and send it to Lee, more than 24 hours after getting the information from Taiwan.

In other words, the case against Chu seems a little tenuous to me — it seems like he was a relatively low-level intermediary who would put insiders in contact with traders, and who thought, probably correctly, that what he was doing was legally dubious. Why was it so important that he be arrested before he left for Taiwan, especially since he seems to have been quite happy to talk to the FBI last Sunday?

My guess is that Chu refused to become a cooperating witness on Sunday, or to admit that he brokered inside information to anybody except Lee. But investigators want him to finger other traders, so they arrested him in an attempt to up the stakes, charging him with one count of conspiracy to commit securities fraud, and one count of conspiracy to commit wire fraud. He could try to fight the charges, but his chances probably aren’t that good, and he also probably can’t afford a good lawyer.

Chu’s small fry: you don’t tend to find white-collar criminal masterminds living in Somerset, New Jersey. Investigators want him in the US, helping them with their inquiries. But ultimately, as far as the government is concerned, his arrest is a means to an end, rather than an end in itself.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

this is going to get verrry interesting. Any smart intelligence network manager is going to operate in multiple countries, including some where enforcement is weak.

Did we tap their phones? Did we intercept the details of their banking transactions? Did we use the international banking system to do it?

Encrypting digital information now is trivially easy. Do we have backdoors in TrueCrypt, PGP, the commercial products? I have to believe after all the problems with the Paulson emails, Goldman execs talked to all kinds of info sec experts.

Posted by ARJTurgot2 | Report as abusive

Do you really believe the Feds are going to list their best evidence in a press release? You know better than that. I’ll take it you were anxious to head out for the long weekend and had a brain cramp.

Posted by PhilPerspective | Report as abusive

I’m not an insider, but if I were one… I’d not be making the money based on salary/retainer for the info, but on the opportunity to trade I’d have based on the fact I was selling insider info to hedge funds. OK, so this is double dealing, but pots and kettles double deal in blackness all the time.

Posted by nicfulton | Report as abusive

That’s really valuable information for a guy to be getting for 6 grand a month. That’s a competitive, low margin industry and I as an analyst for another competitive, low margin industry I’m really shocked that any insiders were able to get that kind of information. Then again I don’t deal with Taiwanese companies so the data might be leaky there, but I can’t imagine an American, European or Japanese company letting that kind of data out at all.

Posted by tuckerm | Report as abusive

a person formerly michael kors factory outlet engineered beats by dre cheap and beats by dre cheap expanded Nike worldwide michael kors handbags outlet karate/soccer michael kors factory outlet business venture as vp not to mention is states branding vp remedies business michael kors outlet.

Kimree is a world-leading e-cigarette company. According to Frost & Sullivan, Kimree was the second largest e-cigarette designer and manufacturer in the world in terms of both revenues and production volume in 2013. The Company designs and produces a broad range of e-cigarette products, including disposable e-cigarettes, rechargeable e-cigarettes and e-cigarette accessories. Visit for more.

stylish, easy and restrained