Aug. 17 (Bloomberg) -- Cresyn Co., a maker of earphones for Apple Inc. iPods, said it paid a manager of the U.S. company, who was indicted by a U.S. grand jury, for market consulting services.
“It was our understanding the contract was with Apple since we knew he was an Apple employee,” Kim Chang Jun, a spokesman for the Seoul-based company said in a telephone interview yesterday. “Apple was specified in the contract, and we believed it, so we sent the money.”
Paul Devine, 37, a global-supply manager, indicted on 23 counts including money laundering and wire fraud, pleaded not guilty in federal court in San Jose, California yesterday.
Devine gave the suppliers of iPhone and iPod accessories confidential data that helped them win better contracts from Cupertino, California-based Apple in exchange for payments, according to the indictment. The suppliers included Cresyn, China’s Kaedar Electronics Co. and Singapore-based Jin Li Mould Manufacturing Pte., according to a civil complaint Apple filed against Devine.
The scheme, which brought in more than $2.5 million, lasted from about February 2007 until this month, prosecutors said. Cresyn began to supply earphones for iPods in 2007, Kim said.
Jill Tan, a Hong Kong-based spokeswoman for Apple, declined to comment on Cresyn’s statement that its consulting contract was with Apple.
“If you want to get information on Apple’s products, then maybe this is the easiest way to get it,” said Steven Tseng, an electronics analyst at RBS Asia Ltd. in Taipei. “If you can get your own products ready earlier than your rivals, then you have an upper hand.”
No Other Sources
Cresyn only received information on market trends in the U.S and the sales trends of other companies, Kim said. The closely held company agreed to Devine’s proposal after he approached them in 2006 because it had no U.S. office and only limited information on that market at the time and considered the information useful.
“They were basic data that business partners could share and normally give and take,” he said.
Cresyn transferred the money to a bank account designated by Devine, Kim said. “It wasn’t that much,” he said, while declining to disclose how much the company paid.
Devine used a chain of foreign and domestic bank accounts, along with one front company, to receive payments, according to court papers. Code words, such as “sample,” were used to refer to the payments to avoid raising the suspicions of other Apple employees, and he would also have bank transfers wired to his wife’s name, prosecutors said.
Breach of Contract
Apple said it sued Devine on Aug. 13, claiming breach of contract, racketeering and breaching fiduciary duty. The company is seeking disgorgement of ill-gotten gains, other damages, and an order barring the misappropriation of Apple’s confidential information.
“We have zero tolerance for dishonest behavior inside or outside the company,” Apple spokesman Steve Dowling said.
Apple paid Devine $614,000 in salary and $51,076 in bonuses, along with 4,500 Apple stock options and 900 shares of restricted stock over a five-year span, according to the complaint.
The case is U.S. v. Devine, 10cr603, U.S. District Court, Northern District of California (San Jose).
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