The FBI and Department of Justice yesterday busted four current and former executives from a variety of companies -- Dell, AMD, Flextronics and Taiwan Semiconductor Manufacturing Company -- and charged them with insider trading. The information was used to bolster investment opportunities as part of their consultant gigs at investment firm Primary Global Research. A fifth defendant has already been charged in the ongoing case.
The story actually begins in November when the FBI/DOJ charged Don Ching Trang Chu with insider trading. The FBI/DOJ also arrested a former Dell exec who was now working with Primary Global Research. According to the FBI, Daniel Devore pled guilty on December 10, 2010, to wire fraud and conspiracy to commit wire fraud and securities fraud.
Another Primary Global executive, James Fleishman was arrested yesterday on wire fraud and conspiracy charges for conspiring to provide confidential information, including material, nonpublic information to the company's clients, including hedge funds, the FBI stated. It should be noted that Primary Global, a hedge and mutual fund investment outfit, has not been charged with any wrongdoing.
The others arrested this week include Mark Longoria, Walter Shimoon, and Manosha Karunatilaka on charges of wire fraud and conspiracy to commit securities fraud and wire fraud charges in connection with their employment as consultants for the Primary Global Research, the FBI stated.
"The information trafficked by the four 'consultants' went way beyond permissible market research; it was insider information. And the fifth defendant was directly involved in the transfer of inside information from the consultants to hedge funds and other end users. The more than $400,000 the firm paid the four 'consultants,' merely to participate in phone calls with firm clients, is an indication of the value placed on the information. This wasn't market research. What the defendants did was purchase and sell insider information. Our investigation is most assuredly continuing." Said FBI Assistant Director-in-Charge Janice Fedarcyk in a statement.
It is Shimoon who allegedly provided insider information about Apple, particularly related to iPad and iPhone developments, the FBI stated.
From the FBI: "During the relevant time period, Flextronics had a business relationship with Apple, pursuant to which Flextronics supplied certain electronic components to Apple, including specifically-engineered camera and charger components to Apple for its "iPhone" cellular telephones and "iPod" portable media players. In addition, Apple often shared information with Flextronics about future Apple products under development. The confidentiality of this information was governed by a separate non-disclosure agreement executed between Flextronics and Apple. For example, in or about 2009, Apple informed Flextronics about a highly secretive project being developed that ultimately resulted in the public product launch of the "iPad" tablet computer. While employed at Flextronics, Shimoon engaged in consultation calls with Firm [Primary Global] clients, during which he provided confidential Flextronics and Apple information, including Inside Information. For example, Shimoon provided highly confidential sales forecast information and new product features for Apple's forthcoming "iPhone" cellular telephone. Between January 2008 and June 2010, the Firm [Primary Global] paid Shimoon more than $22,000 for consultation services he provided."
Meanwhile, Longoria was employed by Advanced Micro Devices as a Supply Chain Manager in Round Rock, Texas. From the FBI: "While employed at AMD, Longoria engaged in consultation calls with Primary Global clients. During the consultation calls, Longoria provided confidential AMD information, including inside information. For example, during telephone calls with cooperating witnesses in July 2009, Longoria provided AMD revenue information, average sales prices, product sales figures, and gross margin information. Between January 2008 and March 2010, the Firm [Primary Global] paid Longoria more than $200,000 for consultation services he provided."
Karunatilaka was employed by Taiwan Semiconductor Manufacturing Company (TSMC) as an account manager. Form the FBI: "While employed at TSMC, Karunatilaka engaged in consultation calls with Firm [Primary Global] clients, during which he provided confidential TSMC information, including inside information such as TSMC product sales and shipping information. Between January 2008 and June 2010, the Firm [Primary Global] paid Karunatilaka more than $35,000 for consultation services he provided."
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This story, "iPhone, iPad Secrets Were Fodder in Insider Trading Bust" was originally published by Network World.