Law books and gavel

SEC charges California man for illegal tips to hedge fund manager

The Securities and Exchange Commission has 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, California received USD15,000 and stock tips about a pending corporate acquisition for regularly providing a fellow poker player, Danny Kuo, with non-public 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 and Level Global Investors. 

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,” says 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 US 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 USD16m trading in Nvidia securities based on Lim’s inside information.  Lim lives in Los Altos, California and is employed in the accounting department of a semiconductor firm. Lim and Kuo met at poker parties organised 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 finalised its financial results for a given quarter and prepared to report them publicly.  Lim typically learned the non-public 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 non-public 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 USD5,000 to a Las Vegas casino to pay a debt for Lim, and later Kuo made two USD5,000 cash payments to Lim. Kuo also provided Lim with non-public information about a pending corporate acquisition, which Lim used to make more than USD11,000 in trading profits.

The SEC’s complaint charges Lim with violating the anti-fraud provisions of US 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.

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