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Loose Lips Can Sink a High-Tech Career

Have you ever been contacted by a firm asking you to sign up to be one of its experts? The pitch is that you sign up as a consultant, the firm will ask you to participate in phone calls and answer questions, and you get paid for it. Sounds like easy money.

But be very, very careful. It’s just that kind of situation that appears to have led four technology executives, including two supply chain managers, to allegedly violate insider trading rules. The US Securities & Exchange Commission is conducting a broad investigation into these so-called network expert firms, which match hedge fund managers and other traders to experts in various industries.

Three industry executives were formally charged with wire fraud and conspiracy to commit securities fraud in December. They are Walter Shimoon, a former senior director of business development at {complink 2085|Flextronics Corp.}, Mark Anthony Longoria, a former supply-chain manager with {complink 103|Advanced Micro Devices Inc.}, and Manosha Karunatilaka, an account manager at {complink 5388|Taiwan Semiconductor Manufacturing Co. (TSMC)}.

A fourth executive, Daniel DeVore, a former global-supply manager at {complink 1544|Dell Inc.}, pleaded guilty to charges related to insider trading on Dec. 10, according to The Wall Street Journal, and is now cooperating with authorities.

These men had been consulting part-time over the last two to three years for network expert firm Primary Global Research LLC. The four were allegedly paid more than $400,000 to participate in these calls with traders — calls that it turns out the Federal Bureau of Investigation had wire-tapped.

The SEC complaint notes that each of these men had signed non-disclosure agreements (NDAs) with their employers and were aware that they should not share certain information. It also points out that Primary Global Research specifically stated that its consultants were not to share proprietary information. Nevertheless, these guys blabbed away. For that kind of money, the pressure would be great to deliver information of value. Did they realize what they were doing? Or did they believe it was harmless?

The SEC complaint, which includes transcripts of some of the phone calls, should be required reading for every supply chain executive, manager, and plain-old working stiffs. Here are details of the charges as well as some of the material non-public information that they allegedly supplied during these calls:

  • Shimoon is accused of providing information related to Flextronics and {complink 379|Apple Inc.}, including forecast information and new product features for Apple’s IPhone. During one phone call, he said that Apple would be producing a new iPhone and that it would include two cameras, a five megapixel auto-focus camera, and a VGA forward-facing video conferencing camera. When the investor asked him when the new phone would hit the market, Shimoon said: “I don’t have [an] exact time frame, but I’ve concluded we’ll start building modules probably in March. Um, so you give it one to two months, April, May,” according to the complaint.
  • Longoria is accused of providing data on AMD revenue, average sales prices, product sales and shipments, and gross margins. Longoria told a trader that he had “quite a bit of insight as to how things are trending and, uh, you know when things are bad and when things are good.” What he also had was access to AMD’s top-line revenue numbers. When Longoria told the trader that he thought that second-quarter 2009 revenue would be $1.18 billion, the trader asked him how confident he was in that number. Longoria replied, “I’ve got a buddy that works in finance that gives me all the nitty gritty details, probably more than I can understand.”
  • Karunatilaka is accused of providing TSMC product sales and shipping information. Specifically, in one conversation Karunatilaka discussed TSMC’s pricing, margin information, and “the inventory situations” of various customers.

More arrests are expected as the SEC continues its investigation. Are you or any of your staff “consulting” on the side? Even if it’s entirely above board, be very, very careful.

You can read the SEC complaint here. The Wall Street Journal did a fascinating graphic, showing how some of the information on certain companies allegedly flowed through these guys to investors and hedge funds. See it here.

[Harbert reads between the lines and speculates about how big a scandal this could be, and whether it will change any behaviors, on her personal blog, A Company of One.]

— Tam Harbert has been covering electronics since the dawn of surface-mount technology. She lives online at tamharbert.com.

13 comments on “Loose Lips Can Sink a High-Tech Career

  1. Ariella
    January 19, 2011

    I think they had an inkling that what they were doing did violate laws of insider trading; they just didn't think they would get caught.  The way some firms are structured, there is a great likelihood for insider trading to occur despite the window dressing of separated departments.  People can meet up and swap information, and it is not always possible to get it on record.  The ones who avoid leaving a trail or getting caught on a wire are the ones who get away with it.

  2. Ashu001
    January 19, 2011

    Ariella,

    I agree(sortof),Most of these Execs were dumb enough to get caught….

    There is very little that they did (feels wrong to them),as a matter of fact if these companies were Private;then all the information they handed over would'nt make much difference.

    But for Publicly listed corporations it makes a big-big difference.

    Unfortunately huge segments of Wall Street today runs on this very principle of cheating Shareholder interests(especially Retail investors).So this conviction is not going to change much or make people more wary(in my opinion).

    regards

    Ashish.

  3. Ariella
    January 19, 2011

    You're right, Ashish, publicly listed companies do make a difference in terms of law.  But even there, some people know how to skirt the law when it is to their advantage.  The key is always not to get caught.

  4. Ashu001
    January 19, 2011

    Kinda Sad is'nt it?

    Think about it Ariella,The stuff we were taught as kids(and I am sure you are teaching the same stuff to your kids even today)…

    And what the Corporate world teaches us.

    Its at times like this,I dread for our children's future…

    Ashish.

  5. Jay_Bond
    January 19, 2011

    I would say that these individuals were well aware of what they were doing. I feel that they might of been thinking that since they were not acting on part of their companies and acting as consultants that they were doing nothing wrong.

    To be in such high ranking positions as they were with such large companies, to plead ignorance is comparable to calling the SEC idiots. To think that they risked their careers and jail time for a little extra money and now have to face their families and explain why their lives have changed.

    Hopefully current and future execs can look at this as an example of what not to do. This is also true for employees who have certain binding contracts with their employers.

  6. Anna Young
    January 19, 2011

    These lips didn't just open up by themselves; there were quite a few incentives that helped to part them.

  7. Barbara Jorgensen
    January 19, 2011

    I think the temptation to show how much of the inside track you have is what sunk these guys. Yes, they were high-level executives, but they wanted to appear to know everything, even when they weren't the appropriate person to represent product launch dates, financial targets etc. I agree–they must have known these things were taboo on any non-company conference call.

  8. Parser
    January 19, 2011

    We are blogging here and each of us has some knowledge and things can slip out. As long as we don’t earn 400k/year nobody will sue us or the question is “is it a slip or release of confidential information”? 

    In the case of the executives it is clear that they were showing off how well informed they were. The company who does market research is still there and they will continue their job of gathering information. 

  9. tender vittles
    January 20, 2011

    These people should be fired. No question. How about a little common sense? How about some ethics? How about a little intellect?

    Wow. So I give away key information about my company's highly proprietary widget before anyone else in the marketplace knows. Is there a problem? Get real folks. I can't feel sorry for people who act like stooges.

     

  10. Eldredge
    January 22, 2011

    These are the very execs who should be expecting their subordinates to protect their comapny (and partners) intellectual property, which is what is involved here. I would expect them to fire anyone who shared this type of information….they should, and do, know better. Think there is any arrogance involved?

  11. maou_villaflores
    January 30, 2011

    I think most of the companies asked their employees to sign Non-disclosure agreement. 

  12. Eldredge
    January 30, 2011

    I expect the companies would, particularly at the executive level, where they are likely to be exposed to sensitive information.

  13. saranyatil
    May 9, 2011

    Yeah obiously thats the way they can  get the skeleton out of the cup board.

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