Five more people, including former employees with
Dell, Advanced Micro Devices and Taiwan Semiconductor Manufacturing,
were arrested in the federal government’s expanding investigation into
insider trading that already has snared executives with several major
high tech firms.
Federal prosecutors announcing the arrests Dec. 16
said the defendants were part of a complex scheme that included
employees at the technology companies who also worked as consultants
for what investigators said was an “expert networking” firm. James
Fleishman, a sales manager at the expert networking firm, acted as the
conduit between the four consultants and investors, according to
prosecutors.
Fleishman, who was charged with conspiracy,
reportedly worked for Primary Global Research (PGR), the same place Don
Chu was employeed. Chu was arrested in November on similar charges.
"Today's charges allege that a corrupt network of
insiders at some of the world's leading technology companies served as
so-called 'consultants' who sold out their employers by stealing and
then peddling their valuable inside information," U.S. Attorney Preet Bharara said
in a statement, adding that the information in the complaint and the
plea agreement of Daniel Devore last week “describe criminal conduct
that went well beyond any legitimate information sharing or
good-faith business practices.”
Both Bharara and Janice Fedarcyk, assistant
director-in-charge at the FBI, said the investigation into insider
trading would continue. The case is being investigated by Bharara’s
office in Manhattan, the FBI and the SEC (Securities and Exchange
Commission).
Among those arrested were Mark Longoria, who
worked as a supply chain manager at AMD for three years before
resigning from the company in October. Walter Shimoon was a senior
director of business development at Flextronics international, whose
company supplied components to Apple. Manosha Karunatilaka was an
account manager at TSMC. All have been charged with wire fraud and
conspiracy to commit wire fraud and securities fraud.
Devore was a global supply manager at Dell. He
pleaded guilty Dec. 10 to charges of wire fraud and conspiracy to
commit wire fraud and securities fraud, and is cooperating with
investigators. According to prosecutors, Fleishman’s firm paid Devore
more than $145,000 between late 2007 and August for giving inside
information about Dell’s busienss to PGR and directly and indirectly to
PGR clients, which included hedge funds.
The investigators said that PGR paid all four
defendants more than $400,000 in their roles as consultants. For the
money, the four would get on telephone calls with clients of the firm
and during those calls, would pass along non-public information about
their companies. For example, Longoria, during calls with cooperating
witnesses in July 2009, gave information regarding AMD’s revenues,
average sales prices, average product figures and gross margins.
Longoria was paid more than $200,000 between January 2008 and March,
when his relationship with Fleishman’s firm ended.
Shimoon, who in his job with Flextronics was
privvy to confidential Apple information, also was in conference calls
with PGR clients, during which he gave sales forecast information and
new product features for Apple’s upcoming iPhone. He received more than
$22,000 in fees over a two-year period.
Karunatilaka, who gave PGR clients sensitive
information about Taiwan Manufacturing, was paid $35,000 for his
consultant role, according to investigators.
The amount of money PGR paid out to the four was
an indication of how important Fleishman thought their information
was, the FBI’s Fedarcyk said.
“This wasn’t market research,” she said in a statement. “What the defendants did was purchase and sell insider information.”
In a statement, an AMD spokesman said the company was cooperating with investigators.
“It appears that AMD is the victim of an insider
trading scheme,” the spokesman said in a statement. “AMD has been
cooperating with the U.S. attorney’s office and will continue to do so.
AMD has a clear and comprehensive policy regarding insider trading and
a worldwide insider trading training program. AMD additionally has
policies regarding work by its employees outside of AMD including
consulting arrangements such as the so-called expert networks that
appear to be at the heart of the government’s insider trading
investigations.”
The issue of high tech officials and insider
trading hit the headlines in October 2009 when a number of Wall Street
traders and tech company executives—including Robert Moffat,
a 31-year veteran of IBM who at the time of his arrest was senior vice
president and group executive of IBM's $20 billion Systems and
Technology Group—were arrested on insider trading charges.
Moffat, who pleaded guilty earlier this year for
his role in the $25 million insider trading scandal, was sentenced in
September to six months in prison. He was friends with Danielle Chiesi,
at the time a porfolio manager at hedge fund New Castle Funds, and gave
her confidential information regarding IBM, AMD and Sun Microsystems.
Others arrested included a former executive with Intel.
As with the cases against Moffat and others,
investigators used methods normally found in organized crime
investigations—including wiretaps—to gather evidence. According
to reports, investigators in their criminal complaints against Longoria
and the others indicated that they tapped some phones at PGR as well as
the mobile phones of Longoria and Shimoon.
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