Thursday, December 16, 2010, 05:10 pm PT (08:10 pm ET)
Apple supplier arrested in insider trading probe over future iPhone, iPad detailsAn insider trading sweep by federal prosecutors that led to the arrest of five suspects included a senior director for Apple supplier Flextronics, who was arrested on charges that he leaked confidential details about an upcoming iPhone and the unreleased iPad.
The arrests were the result of a three-year investigation that has led to raids on Wall Street hedge funds and mutual funds in recent weeks, The Wall Street Journal reports. According to the report, more arrests are expected in the months ahead.
Walter Shimoon, senior director of business development at Flextronics, allegedly provided "highly confidential" sales forecasts and details for an unreleased iPhone during his time as a consultant for "expert-network" firm Primary Global.
Shimoon may have also leaked information about Apple's highly secretive K48 tablet project, which became the iPad.
According to the Silicon Valley Business Journal, a government complaint filed with Shimoon's arrest included a transcript of a wire tap in which Shimoon allegedly said, "Its a new category altogether. I believe its called K48 ... At Apple, you can get fired for saying K48 ... outside of a meeting that doesnt have K48 people in it. Thats how crazy they are about it."
In a moment of unwitting precognition, he is also alleged to have told a witness cooperating with the investigation, "That would really suck if you recorded all the calls."
Expert-network firms charge a fee to investors for arranging "consulting sessions" between investors and employees of public companies for the purposes of market research, the Journal noted.
In November, the Journal reported that the U.S. Securities Exchange Commission was investigating expert-network firms and Wall Street analysts for possible insider trading.
Flextronics, which has supplied electronics components to Apple for years, issued a statement Thursday acknowledging that Shimoon "has been terminated."
U.S. Attorney Preet Bharara described the case as involving "a corrupt network of insiders at some of the world's leading technology companies " who "sold out their employers by stealing and then peddling their valuable inside information."
"The information trafficked by the four 'consultants' went way beyond permissible market research," said FBI Assistant Director-in-Charge Janice Fedarcyk. "It was insider information." Fedaryck revealed that insider consultants had allegedly been paid over $400,000.
Primary Global vice president and sales manager James Fleishman, who was also arrested Thursday, told one executive cooperating with the government, "whatever you're looking for, whether it is short term or long term, we'll have people."
Other consultants charged in the case include former employees at Dell, AMD and Taiwan Semiconductor Manufacturing Co. They were charged with "wire fraud and conspiracy to commit securities fraud and wire fraud," the Journal reports.
Apple has long been known as one of the most secretive companies in Silicon Valley. According to one marketing veteran, the company's culture of secrecy took shape in 1984 with the release of the original Macintosh.
In July, former Apple employee Justin Maxwell offered a rare glimpse into Apple's security measures.
"It wasn't just the rules, it was the job itself," Maxwell said. "The measures that Apple takes to protect its creative and intellectual environment are unparalleled in the valley, and it's been a disappointing experience since leaving there. Apple's security policy extends to blogs, to speaking engagements, to what we talk about with our spouses. Most people get it and respect it."
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