A government investigation into insider trading has, unsurprisingly, found its way into the mobile industry. Yesterday, four people — including employees for Dell and the major component manufacturers Flextronics and AMD — were arrested for supplying confidential information about products like the iPad and iPhone to hedge funds, making at least $400,000 in the process.
According to this release from the FBI, the four men charged yesterday were James Fleishman, Mark Anthony Longoria, Walter Shimoon, and Manosha Karunatilaka. A fifth man, Daniel Devore, had worked in a senior position at Dell and pleaded guilty to charges earlier this month.
Fleishman worked as a consultant for the firm Primary Global Research, which works with investment managers to help them, in the words of its website, “generate alpha in their portfolios.” He was charged with wire fraud and conspiracy charges for conspiring to provide confidential information, including material, inside information to the firm’s clients.
Meanwhile, Longoria worked for and supplied information about the wireless chip-maker AMD. Karunatilaka did the same but for Taiwan Semiconductor Manufacturing Co.
And Shimoon, from his position as a business development director for Flextronics International, leaked some of the juiciest information of all: confidential information about Apple (NSDQ: AAPL) products. He tipped off what turned out to be informants about the iPhone 4 and the iPad — codenamed K48 — months before either was revealed to the market. (He no longer works for Flextronics.)
The latter three men were also charged with wire fraud and conspiracy to commit securities fraud and wire fraud charges, in connection with their employment as consultants for Primary Global.
Insider information is definitely not a new phenomenon, but what’s interesting is how a lot of what might have been valuable tips in the past have now become part of the general flow of information, courtesy of the internet.
Apple’s iPad is a prime example: people couldn’t quite identify the name, but everyone from the influental bloggers to casual observers were certainly were writing about Apple’s tablet at least as early — and actually earlier than — as Shimoon was passing his information over in October 2009.
So wherein lies the value? Hearing information first-hand still comes at a premium, it seems. And of course there are the violations of those contracts that the employees signed.
In any event, this one case is probably just the tip of the iceberg, not just in terms of what is actually going on, but also in terms of what the Feds will uncover:
FBI Assistant Director-in-Charge Janice K. Fedarcyk: “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.”
Link to the full sealed complaint (via WSJ) is here.