A sigh of relief went out as authorities announced new insider trading charges against five people Thursday.
“I’m just glad it’s not anyone who is anyone,” a hedge fund manager explained.
Those charged—four consultants and an employee of Primary Global Research—are not closely connected with either the hedge fund world or Wall Street’s investment banks.
“It’s good news every time they arrest someone who isn’t running money, someone who isn’t primarily engaged in trading securities,” another manager explained.
Because of the ongoing probe, however, most of the fund managers or employees we contacted didn't want to be quoted on the record. They may be relieved that today’s bust didn’t involve them or their friends—but they didn't want to attract the attention of the authorities either.
The arrests today seem closely connected to the government’s probe into Galleon. The government made its first arrest of a Primary Global employee, Don Ching Trang Chu, on Nov. 24. Evidence against Chu was obtained when the government got Richard "C.B." Lee to record their conversations. Lee—a former Galleon employee—had been ensnared in the Galleon investigation. Lee also worked for SAC Capital.
Wall Street firms and hedge fund managers have been afraid that the probe into insider trade could wind up ensnaring well-known financiers who do not have a direct connection to the Galleon case. The investigation has created uncertainty about what federal authorities consider to be illicit information gathering by traders.
There has been a lot of speculation that the FBI would be making more arrests before the end of year.
“It’s a relief that the men in black coats didn’t pull up to any prominent address in Greenwich or Stamford,” an employee at a large hedge fund told me.
"We'd never even heard of Primary Global over here, until they made the news in recent weeks," Dave Katona, a director at the New York based hedge fund Abundance Partners, said.
One person familiar with the matter says that a large and well-known hedge fund stopped using Primary Global’s research over a year ago, shortly after Galleon founder Raj Rajaratnam was arrested.
Not everyone is at ease.
“The fear is that the Primary Global guys will be flipped next, and start saying that their clients all knew they were getting insider information. Then the feds come after the guys actually running money,” a trader at a small fund based in Stamford said. He quickly added that he never was a customer of Primary Global.
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