SEC Charges California Man for Illegal Tips to Hedge Fund Manager
The Securities and Exchange Commission today charged a California man with illegally tipping a hedge fund manager with inside information about Nvidia Corporation’s quarterly earnings that he learned from his friend who worked at the company.
The SEC alleges that Hyung Lim of Los Altos, Calif., received $15,000 and stock tips about a pending corporate acquisition for regularly providing a fellow poker player, Danny Kuo, with nonpublic details ahead of Nvidia’s quarterly earnings announcements. Kuo, a hedge fund manager, illegally traded on the information and passed it on to multi-billion dollar hedge fund advisory firms Diamondback Capital Management LLC and Level Global Investors LP. The SEC charged Kuo and the firms among others earlier this year as part of its widespread investigation into the trading activities of hedge funds.
“These hedge fund traders were eager to find an edge in an otherwise competitive marketplace, and Lim provided them that edge for a price,” said Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit. “Now one more participant in this sprawling scheme is being held accountable for his illegal transgressions.”
In a parallel action, the U.S. Attorney for the Southern District of New York today announced criminal charges against Lim.
According to the SEC’s complaint filed in federal court in Manhattan, Kuo and the hedge funds made nearly $16 million trading in Nvidia securities based on Lim’s inside information. Lim lives in Los Altos, Calif., and was employed by a semiconductor firm. Lim and Kuo met at poker parties organized by a mutual friend.
The SEC alleges that during at least 2009 and 2010, Lim regularly obtained detailed information about the contents of Nvidia’s upcoming quarterly earnings announcements from his friend who worked at Nvidia. Lim’s source provided him with not just one but a series of tips, which grew more accurate and reliable as Nvidia finalized its financial results for a given quarter and prepared to report them publicly. Lim typically learned the nonpublic information in phone conversations with his Nvidia friend, and within one minute of ending a conversation Lim would immediately call Kuo to relay the latest inside information. Lim provided Kuo such nonpublic details as Nvidia’s calculation of its revenues, gross profit margins, and other important financial metrics before the company made those figures public in its quarterly earnings announcements.
The SEC alleges that Lim was compensated by Kuo for the confidential Nvidia information that he provided. Kuo wired $5,000 to a Las Vegas casino to pay a debt for Lim, and later Kuo made two $5,000 cash payments to Lim. Kuo also provided Lim with nonpublic information about a pending corporate acquisition, which Lim used to make more than $11,000 in trading profits.
The SEC’s complaint charges Lim with violating the anti-fraud provisions of U.S. securities laws and seeks a final judgment ordering him to disgorge his ill-gotten gains and those of his tippees plus interest, ordering him to pay a financial penalty, permanently enjoining him from future violations, and barring him from serving as an officer or director of a public company.
The SEC’s investigation, which is continuing, has been conducted by Stephen Larson, Daniel Marcus and Joseph Sansone, who are members of the SEC’s Market Abuse Unit in New York, along with Matthew Watkins, Neil Hendelman, Diego Brucculeri and James D’Avino of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in this matter.