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Wednesday, September 14, 2011, 11:02 pm PT (02:02 am ET)

Former Samsung manager testifies to leaking iPad info to hedge fund

Witness testimony from a former Samsung manager during an insider trading trial has revealed that he leaked early information on the iPad to representatives from an "expert network" firm and a hedge fund.

Suk-Joo Hwang, a 14-year veteran of Samsung, testified in a federal court on Wednesday after being granted immunity from prosecution, Bloomberg BusinessWeek reports. He admitted to having lunch in Mountain View, Calif., with Primary Global Research executive James Fleishman and a hedge fund manager and providing confidential information about Samsung's shipment of LCD screens to Apple for the iPad.

Samsung served as one of the suppliers for the original iPad. Apple is expected to be the South Korean electronics giant's largest customer this year with an estimated $7.8 billion in orders.

"One particular thing I remember vividly was that I talked about the shipment numbers of Apple, it was about iPad,” he said. “This is in December 2009, before it came out with the tablet PC, they didn’t know the name then, so I talked to them about the tablet shipment estimates in that meeting.”

Fleishman faces 25 years in prison if convicted of the two counts of conspiracy he has been charged with. He was arrested last December as part of a wide-ranging Securities Exchange Commission probe investigating the practice of expert networks, which charge a fee to connect investors with employees of companies.

When asked how Fleishman and the fund manager reacted to the information he provided, Hwang said, “They didn’t know about it,” adding that the fund manager “was very excited.”

“In fact, I said, ‘Please, just keep this to yourself,’” Hwang testified while reenacting the scene. “I remember after I said this, James, he was nodding his head.”

Hwang said he quickly became concerned that they had been overheard by an Apple employee. "After I said it, I looked around,” he remarked. “The first thing I thought was ‘Wow, I said it too loud’ and then I really freaked out.”

The witness acknowledged that he had earned roughly $38,000 for his work as a consultant. He said he grew especially worried that he would be discovered as a leak after learning that Samsung had lost a supply contract with Apple.

“I thought, ‘Oh that guy was an Apple guy and they found out,’” Hwang said. “I was scared.”

After serving as an expert-network consultant for six years, he was contacted by the Federal Bureau of Investigation last October in connection with the insider trading probe. According to a court order from U.S. District Judge Jed Rakoff, Hwang's testimony can't be used against him and he can only be prosecuted if he commits perjury. Hwang was fired by Samsung in June.

One U.S. Attorney has described the charged individuals as "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."

After Fleishman and several consultants were arrested, FBI Assistant Director-in-Charge Janice Fedarcyk went on record as saying, "The information trafficked by the four 'consultants' went way beyond permissible market research." For instance, Fleishman allegedly told an executive cooperating with authorities: "Whatever you're looking for, whether it is short term or long term, we'll have people."

A former employee of an Apple supplier was arrested in connection with the probe. Walter Shimoon, who served as senior director of business development at Flextronics, is accused of providing "highly confidential" sales forecasts for an unreleased iPhone, as well as leaking information about the iPad. Unlike Fleishman, who has pleaded not guilty, Shimoon has pleaded guilty to charges of conspiracy to commit wire fraud and security fraud.