Thursday, December 16, 2010 3 comments ++[ CLICK TO COMMENT ]++

Greed has no boundaries... SEC charges several with securities fraud and wire fraud

The Bernie Madoff debacle, whereby the SEC completely missed his illegal activities, has certainly lit a fire under the SEC. There have been several charges against those benefitting, or abetting, insider trading and the trend continues with four managerial-level employees arrested today. According to MarketWatch,

Federal authorities said Thursday that they arrested four people on insider-trading charges, including three former employees of technology companies Advanced Micro Devices, Flextronics International and Taiwan Semiconductor Manufacturing Co.


Another person — Daniel DeVore, 46, formerly a global supply manager for Dell Inc. — pled guilty on Dec. 10 to wire fraud and conspiracy to commit wire fraud and securities fraud, the authorities said. He’s cooperating with prosecutors, according to a plea agreement released Thursday.

Among the allegations, filed in the U.S. District Court for the Southern District of New York, authorities claimed that the former Flextronics employee leaked highly confidential information about Apple Inc.’s iPhone before it was unveiled.

...

One of the people arrested Thursday was James Fleishman, an institutional equity sales executive at Primary Global Research, an “expert network” firm based in Mountain View, Calif. Read about Primary Global here.


Fleishman, 41, of Santa Clara, Calif., faces wire fraud and conspiracy charges for conspiring to provide confidential information, including material inside information, to the research firm’s clients, including hedge funds, the authorities said.

Mark Anthony Longoria, 44, of Round Rock, Tex., who was a supply chain manager at Advanced Micro Devices was also arrested, along with Walter Shimoon, 39, of San Diego, Calif., who was a senior director of business development at Flextronics; and Manosha Karunatilaka, 37, of Marlborough, Mass., who was an account manager at Taiwan Semiconductor.

They face charges of wire fraud and conspiracy to commit securities fraud and wire fraud in connect with their employment as consultants for Primary Global, the government said.
Apparently, one of those charged leaked information about some Apple products before it was publicly released:


Walter Shimoon was a senior director of business development of contract manufacturer Flextronics International when he allegedly divulged information to an expert-networking firm on Apple, including the code name for the tablet product that became the iPad, the complaint said.


“It’s a new category altogether,” Shimoon was recorded as saying, according to the complaint. “I believe it’s called K48 ... At Apple, you can get fired for saying K48 ... outside of a meeting that doesn’t have K48 people in it. That’s how crazy they are about it.”

Shimoon had disclosed information to a cooperating witness in the case in which the Justice Department arrested and charged four people with offenses connected to the alleged insider-trading probe. He was charged with conspiracy to commit securities and wire fraud.

In another “intercepted communication,” Shimoon told an unidentified person who eventually became a cooperating witness for the government, “That would really suck if you recorded all the calls,” the complaint said.

In another “intercepted call” in March 2010, Shimoon discussed Apple’s new iPhone telling a hedge fund employee, “Production starts now. We are starting to load the supply chain up ... They are telling their core suppliers to plan for 6 million a month.”

In a different call, Shimoon was also recorded as telling a witness that Apple was about to come out with a new iPhone that was “gonna have two cameras.”

“They’ll have a big, you know, big launch,” he said, according to the complaint. “It’ll be a neat phone, ‘cause it’s gonna have five-megapixel auto-focus camera and it will have a VGA forward-facing video-conferencing camera.”
Some of the so-called insider information doesn't seem material—how many wouldn't have guessed two cameras in the iPhone?—but other material does seem like inside information that can move the stock.

One thing that amazes me with white-collar crime is that many of those engaging in these activities are rarely some poor guy off the street. In this case, it seems that many of those being accused held managerial-level jobs. For instance, Walter Shimoon was a senior director of business development and that sounds like a mid-level executive, who would get paid way more than the average person out there.

None of those accused have been convicted in a court of law and hence may be innocent until proven guilty.

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3 Response to Greed has no boundaries... SEC charges several with securities fraud and wire fraud

noname
December 18, 2010 at 8:51 PM

what do you mean by "may be innocent until proven guilty"?

Sivaram Velauthapillai
December 19, 2010 at 12:46 PM

Well, governments always go after many but until the courts prove something is guilty, the accused may not be guilty. In this case, there are a lot of accusations against quite a number of people. Who knows what is actually illegal? The so-called "expert networks" appear to be pretty common in the investment world and it isn't clear why the SEC went after these 4 guys now? For example, major Wall Street firms do 'channel checks' where they try to figure out how shipments and production is performing but is it legal for those suppliers to leak that information? I have no idea...

August 17, 2014 at 1:10 AM
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