Goldman Sachs Analyst Inquiry Said to Show New Focus in U.S. Insider Probe
By Patricia Hurtado, Tim Culpan and John Helyar – Feb 16, 2012 12:01 AM ET
The investigation of a Goldman Sachs Group Inc. (GS) analyst shows U.S. officials have intensified their focus on banks and Taiwan in a multiyear insider-trading probe that has implicated hedge funds, technology company employees and consultants, a person familiar with the matter said.
The investigation of Henry King, the Goldman Sachs analyst covering Taiwan, shows federal authorities are expanding the insider-trading probe by U.S. Attorney Preet Bharara in Manhattan and the FBI in New York, said the person, who didn’t want to be identified because the matter isn’t public.
The probe, called operation “Perfect Hedge,” began five years ago and has resulted in insider-trading and securities fraud charges being filed against 64 people, with more than 50 since 2009 either pleading guilty or being convicted at trial. They included Galleon Group LLC co-founder Raj Rajaratnam, who is serving an 11-year prison term.
James Margolin, a spokesman for the Federal Bureau of Investigation in New York, declined to comment on the case, or whether King is cooperating. King didn’t answer calls to his Hong Kong office number yesterday. E-mails to his company account received an auto reply saying he’s out of the country on a personal matter.
Michael DuVally, a Goldman Sachs spokesman, declined to comment on the investigation of King, or whether he remains a bank employee or is on leave. Ellen Davis, a spokeswoman for Bharara, declined to comment.
King, based in Hong Kong, covers Taiwanese companies including Quanta Computer Inc. and Compal Electronics Inc., the world’s two largest manufacturers of notebook computers for clients including Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL), according to data compiled by Bloomberg.
King, who joined Goldman Sachs in 2002, was named head of Taiwan research in 2005. Prior to New York-based Goldman Sachs, he worked at Credit Suisse First Boston and Indosuez W.I. Carr Securities Ltd.
Other companies which King covers, according to Bloomberg data, include Hon Hai Precision Industry Co. and Pegatron Corp., the only two assemblers of Apple Inc. (AAPL) iPhones; Catcher Technology Co., and Foxconn Technology Co., the major suppliers of metal casings for laptops and cell phones.
In addition to regular updates on companies under his coverage, including China’s Lenovo Group Ltd., the world’s second-biggest maker of personal computers, and Acer Inc., King also initiated and maintained the Asian Motherboard Monitor while at Credit Suisse First Boston, according to a 2009 report in the Financial Times.
Motherboard Monitor collated data about computer circuit board production and shipments that allowed technology investors to track industry trends, the FT report said. That data can also be used to allow investors to predict the outlook for suppliers such as Intel Corp. (ITC) and Advanced Micro Devices Inc. (AMD), whose chips are required to make the motherboards function.
Pegatron, the manufacturing division spun off from Asustek Computer Inc., is also the largest maker of motherboards which connect components in a computer.
Because of their importance to the computer industry and the need to develop new models ahead of time, motherboard makers are briefed regularly by Intel and AMD about upcoming chips, prices, production schedules and the market environment.
In a 15-page report on the effect of Japan’s earthquake on Taiwan components makers, published in March 2011, King made five references to his having done “channel checks” with manufacturers and vendors to calculate possible supply-chain disruptions.
Bharara’s office in October indicted Rajat Gupta, a former Goldman Sachs and Procter & Gamble Co. director, with leaking material, nonpublic information to Rajaratnam about the two companies. Gupta has denied wrongdoing.
Prosecutors said in a Feb. 3 letter to U.S. District Judge Jed Rakoff, who is presiding over Gupta’s case in Manhattan, that they had witness statements that there was a second “insider” at Goldman Sachs who leaked tips to Rajaratnam that “did not relate to Goldman and/or Procter & Gamble.”
Prosecutors didn’t disclose which stocks the second unnamed tipper, who Rakoff called “Mr. X,” had allegedly disclosed to Rajaratnam.
Gupta’s lawyer, Gary Naftalis, declined to comment about King, or other Goldman Sachs sources Rajaratnam may have had for illegal tips. Naftalis has argued in court that he should be permitted to use such information while defending Gupta at trial.
Taiwan is home to the biggest custom producers of chips used in products including Apple’s iPhone and Dell computers.
Since at least 2004, incidents of analysts dealing in confidential chip-production data have occurred at the Taipei offices of banks including JPMorgan Chase & Co. and Lehman Brothers Holdings Inc., said six people in the finance industry with knowledge of the events, who asked not to be identified to protect their business relationships.
Testimony about fund managers receiving such tips from Asia arose in three insider-trading trials in New York stemming from the Perfect Hedge investigations.
Adam Smith, a former Galleon portfolio manager who worked for Rajaratnam, testified at last year’s trial of the Galleon co-founder that part of his job was “getting the number,” or learning revenue figures before they became public from company insiders at Intel, the world’s largest semiconductor maker, Intersil Corp. (ISIL), Synaptics Inc. (SYNA) and other publicly traded companies.
Smith, who pleaded guilty and is cooperating with the U.S., testified that he got advanced revenue numbers about Intersil, a semiconductor maker, from a Taipei-based engineer at the company named Jason Lin.
In his testimony, Smith said Lin told him that he got the data from an unidentified “senior member of the team” in Taiwan. Smith said he told his boss about the tips and his source’s identity.
The leaked information from Lin was “accurate,” Smith said.
At last year’s trial of Winifred Jiau, a former Primary Global Research LLC consultant charged with selling material nonpublic information, former fund manager Noah Freeman testified he received nonpublic information from technology companies on at least 18 different occasions while working at Sonar Capital and SAC Capital Advisors LLP. Both firms have policies prohibiting the use of such information.
On the witness stand, Freeman, who pleaded guilty and agreed to cooperate with the U.S., was asked how easy it was to obtain such data in Asia.
“Was it your experience that people working in companies based in Taiwan were looser with their financial information and sales data?” David Luttinger, a lawyer for Jiau asked.
“Yes, they were,” Freeman said.
Don Ching Trang Chu, who worked as the Taiwan liaison for Mountain View, California-based Primary Global, said when he pleaded guilty last year that he was present for in-person meetings in Taiwan between fund managers who were clients of PGR and consultants who were also employees of technology companies.
Chu, who pleaded guilty in June, was charged in connection with passing tips to Richard Choo-Beng Lee, a former partner at San Jose, California-based Spherix Capital LLC.