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.