Former Dell, AMD, Flextronics, TSMC Executives Indicted For Insider Trading

Federal prosecutors in New York issued sweeping charges Thursday accusing former executives of AMD, Dell, Flextronics, and Taiwan Semiconductor Manufacturing Co. with divulging inside information for a fee about their companies as well about Apple, RIM and others.

The U.S. Attorney for the Southern District of New York said in a statement that five people had either been arrested or pleaded guilty, and that the investigation is continuing.

The five suspects, including a consultant from an unnamed "expert-networking firm," allegedly received confidential insider information that was then used to execute stock trades.

According to the government complaint, four of the defendants are accused of one count of conspiracy to commit securities fraud and four counts of conspiracy to commit wire fraud.

The four include Walter Shimoon, a former senior director of business development at Flextronics; Mark Anthony Longoria, former supply chain manager at AMD; Manosha Karunatilaka, a former account manager at TSMC; and James Fleishman, a sales manager for the expert-networking firm.

The fifth person charged in the case is Daniel Devore, former global supply manager at Dell, who was arrested earlier and pleaded guilty on December 10 to wire fraud and conspiracy to commit wire fraud and securities fraud.

Five other people involved with these companies have either plead guilty or are still under investigation, and acted as cooperating witnesses in the FBI's investigation of the insider trading.

According to the complaint, the expert networking firm, labeled as the "Firm," advertised itself as an "independent investment research firm that provides institutional money managers and analysts with market intelligence" through a "Global Advisory Team of Experts." The Firm claimed to speak one-on-one with clients to get up-to-the-minute intelligence on factors affecting a company, product, or industry.

The Firm allegedly received payments for its services in both cash and in funds generated by trading activity, the FBI alleged in the complaint.

According to the FBI in the complaint, Longoria on July 21, 2009 provided the Firm with information about revenue numbers, average sales prices, unit sales for different products, and revenue forecasts for AMD about an hour before the close of the stock market that day.

Next: Galleon Hedge Fund Scandal Mentioned

During conversations between Fleishman and Longoria, the topic of the Galleon Hedge Fund scandal of late 2009 came up.

In the Galleon scandal, several of the IT industry's top executives, including Robert Moffat, then senior vice president and group executive at IBM and heir-apparent to IBM Chairman and CEO Sam Palmisano, were indicted for insider trading related to AMD and Global Foundries.

In the current case, the FBI also alleged that a person it identified as "CW-2" provided information on design wins that Marvell, a developer of hard disk drive technology, claimed it had with Western Digital and Seagate.

The FBI also alleged that a person it identified as "CW-3," who called himself a "global supply manager" at Dell focused on notebook hard drives, in early 2009 provided information on Dell's PC business and on its hard drive suppliers, including forecasts for such information.

While not explicitly stated, "CW-3" is most likely Devore, given that the title supplied for "CW-3" in the complaint and the Devore's title in the U.S. Attorney release are the same.

The FBI also alleged that Shimoon around October 1, 2009 provided information he received while working at Flextronics related to Apple's iPhone and iPod devices, including actual third quarter 2009 sales and forecasts for sales in the fourth quarter of that year, as well as information on a new version of the iPhone slated to be released in 2010. Flextronics supplied certain camera and charger components to Apple, and as part of its business relationship received information about the iPhone and iPod devices from Apple.

According to the FBI, Karunatilaka in mid-2009 provided insider information to the Firm related to the wafer booking information for TSMC's top customers, as well as target wafer bookings for later in the year, along with pricing information.

All together, the Firm paid a total of over $400,000 to the four "consultants," according to the U.S. Attorneys statement.

"The more than $400,000 the firm paid the four 'consultants,' merely to participate in phone calls with firm clients, is an indication of the value placed on the information. This wasn't market research. What the defendants did was purchase and sell insider information. Our investigation is most assuredly continuing," said Janice Fedarcyk, FBI assistant director-in-charge, in the statement.