Hedge-Fund Inside Tips Are Like Paying for Sex

Date: Wednesday, January 5, 2011
Author: Ann Woolner, Bloomberg

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.

Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net