U.S. Widens Insider-Trading Probe to Companies

U.S. Attorney Preet Bharara
U.S. Attorney Preet Bharara. Photographer: Ramin Talaie/Bloomberg

Three people who worked at technology firms, including chipmaker Advanced Micro Devices Inc., were arrested along with an “expert networker” as federal prosecutors expanded a probe of insider trading to companies.

A fifth man, Daniel DeVore, formerly a supply manager at Dell Inc., pleaded guilty in federal court in New York on Dec. 10 to conspiracy to commit securities fraud and wire fraud as part of the probe, prosecutors said today in a statement. He is cooperating with the investigation.

Today’s arrests were the latest development in a nationwide investigation of illegal trading at hedge funds by Manhattan U.S. Attorney Preet Bharara, the Federal Bureau of Investigation and the Securities and Exchange Commission. DeVore and three of the four arrested today are accused of providing inside information about their companies to clients of Primary Global Research LLC, a consulting company that provides experts to investors. The fourth person arrested, James Fleishman, works at Primary Global.

“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,” Bharara said in the statement.

According to the criminal complaint unsealed today, U.S. investigators made consensual and wiretap recordings of an unidentified expert-networking firm’s phones, the land lines of an unidentified hedge fund and the mobile phones of two of the defendants, Mark Anthony Longoria and Walter Shimoon.

‘Well Beyond’

Today’s charges “describe criminal conduct that went well beyond any legitimate information-sharing or good faith business practice,” Bharara said, adding that the investigation is continuing.

Fleishman, an account representative at Mountain View, California-based Primary Global, was arrested this morning on charges of wire fraud and conspiracy for allegedly trying to give non-public information to the firm’s clients, including hedge funds, according to the complaint. So-called expert networking firms like Primary Global connect investors with industry specialists who provide insight into a specific market.

Longoria, who worked at AMD; Shimoon, who worked at Flextronics International Ltd., a maker of electronic components; and Manosha Karunatilaka, who was employed at chipmaker Taiwan Semiconductor Manufacturing Co., were charged with wire fraud and conspiracy to commit securities fraud and conspiracy to commit wire fraud, prosecutors said.

20 Years

If convicted of the wire fraud charge, the defendants face as long as 20 years in prison, Edeli Rivera, a spokeswoman for Bharara’s office, said.

The three had worked as consultants at Primary Global, Dan Charnas, a company spokesman, said in an e-mailed statement. Fleishman has been placed on leave, Charnas said.

Longoria appeared in federal court today in Austin, Texas, where he was released on $50,000 unsecured bond, according to Julie Golden, deputy for U.S. Magistrate Judge Andrew Austin, who presided over the proceeding. All further appearances will be in New York, Golden said.

“It appears that AMD is the victim of an insider trading scheme,” said Mike Silverman, a spokesman for the Sunnyvale, California-based company. He said Longoria worked at AMD from January 2007 to October 2010, when he resigned.

“This kind of activity is expressly prohibited by the company,” Silverman said. “AMD has been cooperating with the U.S. attorney’s office and will continue to do so,” he said.

David Frink, a spokesman for Round Rock, Texas-based Dell, the world’s third-biggest maker of personal computers, said the company will cooperate with law enforcement. DeVore’s lawyer, Johnny Sutton, declined to comment.

Apple iPhone

Flextronics supplied components to Apple Inc. during the time of the alleged fraud, prosecutors said in the statement. Shimoon is accused of providing Fleishman’s firm with confidential sales forecast information and new product features for Apple’s iPhone.

Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment.

Renee Brotherton, a California-based spokeswoman for Flextronics, didn’t return an e-mail seeking comment. Chuck Byers, a representative for Taiwan Semiconductor, didn’t return a call seeking comment.

Karunatilaka’s lawyer, Brad Bailey, said his client made an initial court appearance in Boston today before a U.S. magistrate judge who agreed to release him on $300,000 bond. Bailey said he expects his client to be released today.

‘Reviewing the Charges’

“I am in the process of reviewing the charges against him,” Bailey said.

Fleishman won release on $700,000 bail today from U.S. Magistrate Judge Howard Lloyd in San Jose, California.

The bail terms, agreed to by prosecutors in New York, require Fleishman to post his Santa Clara, California, home as collateral, said Stuart Gasner, Fleishman’s lawyer. Fleishman is scheduled to appear in court in New York on Jan. 4.

Fleishman is the second Primary Global employee charged by Bharara’s office. On Nov. 24, Don Ching Trang Chu was charged with arranging for insiders at publicly traded companies to improperly provide information to hedge fund clients of his consulting firm.

Spherix Capital

Chu, 56, was accused of establishing a relationship with Richard Choo-Beng Lee, a former partner at San Jose, California-based hedge fund Spherix Capital LLC, prosecutors said in their complaint against Chu. Lee was employed as an analyst by SAC Capital Advisors LLC, the hedge fund firm run by Steven Cohen, from 1999 to 2004.

The U.S. said Spherix paid Chu’s firm for tips. Inside information was passed concerning Atheros Communications Inc., Broadcom Corp. and Sierra Wireless Inc., according to the government’s complaint.

Lee pleaded guilty last year to insider trading at Spherix Capital and is cooperating with the U.S. in its probe of Galleon Group LLC.

The four arrested today are charged with conspiring to commit securities fraud from 2008 to early 2010, prosecutors said. The U.S. said an unidentified cooperating witness, who worked as a co-manager at a hedge fund, directed payments to an unnamed expert-networking firm.

In October 2009, the U.S. charged Galleon’s founder, Raj Rajaratnam, in what it called the largest insider-trading case involving hedge funds. Rajaratnam, 53, has denied wrongdoing and is scheduled for trial next year.

McKinsey & Co.

In January, former McKinsey & Co. director Anil Kumar pleaded guilty to criminal charges, saying that he leaked advance information to Rajaratnam about AMD’s acquisition of ATI Technologies in 2006, which Rajaratnam used to make $19 million for Galleon.

On Nov. 22, FBI agents from New York and Boston executed search warrants at the offices of Level Global Investors LP and Diamondback Capital Management LLC, firms founded by alumni of SAC Capital Advisors.

Agents that day also executed a search warrant at the offices of Loch Capital Management. None of the firms or their employees has been accused of any wrongdoing.

The case is U.S. v. Shimoon, 10-mj-2823, U.S. District Court, Southern District of New York (Manhattan).

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