Silicon Valley firm at center of insider-trading crackdown


Hedge fund managers looking for an edge in the financial markets in recent years could turn to Primary Global Research, a boutique firm in the heart of the Silicon Valley with connections around the world.

Now the company isn’t answering the phone, the front doors of its Mountain View office are locked and some of its former employees are facing possible prison time.

Founded in 2003 by former Intel Corp. manager Unni Narayanan, Primary Global is at the center of an ongoing Justice Department insider-trading crackdown on the sale of privileged information that could affect stock prices.


In recent weeks federal prosecutors have filed criminal charges against eight people with connections to Primary Global: three employees and five consultants that the company allegedly paid to disclose secrets about publicly traded companies, many of them well-known technology firms.

Primary Global is in the business of “expert networking” — matching outside consultants, primarily employees of public companies, with hedge fund analysts and other money managers who pay hundreds of dollars an hour for access to their knowledge. That activity is legal as long as the experts do not disclose nonpublic information such as plans for new products or an early peek at earnings that could give clients an unfair advantage over other investors.

The case against the Primary Global employees and consultants is based largely on wiretaps and other secret recordings that prosecutors said captured the sale of inside information.

Walter Shimoon, a manager in the San Diego office of Flextronics International, is one of the Primary Global consultants charged in the case. He was secretly recorded while telling an unidentified Primary Global client the number of cameras that Apple Inc. had ordered for use in iPhones, as well as the company’s plans for its iPad tablet computer — a product so covert that Apple code-named it K48, prosecutors said in court documents.

“We’re working with them on the camera. They, you know, are very secretive, right? So I don’t have [an] exact time frame, but I’ve concluded we’ll start building modules probably in March.... So probably sometime in May, they’ll have a big, you know, big launch,” Shimoon reportedly said in an October 2009 call while discussing plans for the iPhone 4 with a hedge fund analyst.

Primary Global paid Shimoon $22,000 for his services from 2008 to 2010, prosecutors said. Other experts made significantly more. Mark Longoria, a supply manager at Advanced Micro Devices Inc. who also has been charged, earned more than $200,000 over roughly the same time period, prosecutors said. Shimoon and Longoria have not yet entered pleas to charges of wire fraud and conspiracy to commit wire fraud and securities fraud.


Expert-networking firms have exploded in the last decade, the result of Securities and Exchange Commission regulations adopted in 2000 that required public companies to disclose material information to everyone at the same time. The new rules increased demand for firms that could connect analysts with experts who could provide an edge, said Michael Mayhew, chairman of Integrity Research Associates, a New York firm that analyzes the performance of investment analysts.

Primary Global was one of the largest beneficiaries, charging asset managers steep fees to pick the brains of its stable of outside consultants. The company’s revenue reached an estimated $20 million to $25 million a year, making it among the top five expert firms in the country, Mayhew said. Primary Global also employed a team of in-house research analysts who were frequently quoted in publications that included the Wall Street Journal, Investor’s Business Daily and Barron’s.

“Users, not surprisingly, loved them for their expertise in the technology sector,” Mayhew said. “They had built a pretty successful business.”

On its website, Primary Global said its consultants “speak one-on-one with clients to provide up-to-the-minute intelligence on trends, issues, regulations and dynamics affecting a particular company.” The firm said it strictly complied with all securities laws and would not permit its consultants to disclose privileged information that could affect stock prices.

But behind the scenes, Primary Global executives paid insiders at companies such as Dell Inc., Advanced Micro Devices and Taiwan Semiconductor Manufacturing Co. to divulge secrets to the company’s hedge fund clients, prosecutors allege.

“This wasn’t market research. What the defendants did was purchase and sell insider information,” said Janice K. Fedarcyk, the FBI’s assistant director in charge.


Prosecutors have charged Primary Global sales manager James Fleishman and employees Don Ching Trang Chu and Bob Nguyen with conspiracy and fraud, alleging that they paid employees at public companies to provide privileged information to Primary Global’s clients. Fleishman and Chu have yet to enter pleas. Nguyen, who has pleaded guilty and agreed to work with prosecutors in their continuing investigation, told a federal judge this month that recruiting and paying insiders at public companies to disclose inside information was part of his job at Primary Global.

“I myself obtained material nonpublic information from PGR experts, often over the telephone, and then passed that information to PGR clients, directly and indirectly through other PGR employees by e-mail or telephone,” Nguyen told U.S. Magistrate Judge Debra Freeman. “I knew that certain PGR experts were providing material nonpublic information about their companies directly to PGR clients.”

Daniel Devore, a former supply manager at Dell, pleaded guilty in December to fraud and conspiracy charges for selling inside information to Primary Global clients. Two other outside consultants charged in connection to the case, Manosha Karunatilaka and Winifred Jiau, have yet to enter pleas.

Primary Global founder and Chief Executive Narayanan, a former Intel manager who earned his undergraduate degree at UCLA, has not been implicated, and prosecutors declined to say whether he was a target of an ongoing investigation. He has not returned messages left on his office voice mail.

The company’s headquarters are in a three-story office building on El Camino Real, a major thoroughfare that bisects tech hubs such as Palo Alto, Mountain View and Menlo Park. A Times reporter visited the headquarters during business hours on two recent weekdays. Both times the doors were locked, the offices dark. An employee in the building’s leasing office said Primary Global had been deserted for weeks.

A woman who answered the door at Narayanan’s home in Sunnyvale directed questions to company spokesman Dan Charnas, who would not comment about the allegations. He declined to say whether the company was still in business.


Integrity Research Associates’ Mayhew said it would be difficult for Primary Global to retain clients, given the allegations.

“No one wants to be near Primary Global,” Mayhew said. “If the allegations are true, then their guys are out there trying to peddle material, nonpublic information. If you’re a legitimate hedge fund or asset manager, you don’t want to be anywhere near someone who provides that kind of information.”

Just last year, Primary Global was in the midst of a major expansion, opening offices on Madison Avenue in New York, hiring employees and entering new markets, including real estate, media and energy. Meanwhile, FBI agents and federal prosecutors were secretly recording conversations among Primary Global employees, its paid consultants and hedge fund analysts.

Fleishman, Primary Global’s sales manager, is the highest-ranking employee at the Mountain View company implicated in the case. He was recorded discussing information that a Dell insider had given to a Primary Global client, prosecutors said.

“He seemed to be willing to share a lot of interesting information on units from their notebooks and [revenue] forecasts,” the unnamed analyst said.

“Oh, good. OK,” Fleishman said, according to prosecutors.

Fleishman’s attorney, Ethan Balogh, did not return a telephone call. Fleishman is free on a $700,000 bond while awaiting trial.


Federal authorities have said that the investigation is continuing and that additional arrests are expected.

Mayhew said the allegations were startling.

“There was plenty of demand and interest for run-of-the-mill experts answering run-of-the-mill questions. There was no need to cross the line. It’s absolutely the same old story. They got greedy,” he said.

“To me, it doesn’t make sense. You make one mistake in compliance as an expert network and you’ve blown up your business.”

Times staff writer Nathaniel Popper in New York contributed to this report, and Bloomberg News was used in compiling it.