- Associated Press - Thursday, December 16, 2010

NEW YORK (AP) - Federal prosecutors in Manhattan broadened their insider trading crackdown Thursday, arresting four people on charges alleging that so-called “expert consultants” revealed secrets about Apple Inc.’s iPhone and other technology products to hedge funds seeking a trading edge on quarterly earnings reports.

The latest probe targeted Primary Global Research, a Mountain View, Calif.-based firm that offered consulting services to investors on industry trends, issues and regulations. Instead, prosecutors allege, firm executive James Fleishman used four consultants employed by publicly traded companies to create a corrupt clearinghouse for confidential information.

Fleishman, 41, was charged with wire fraud and conspiracy. Three others, all outside “expert consultants” for Primary Global Research until earlier this year, were charged with wire fraud and conspiracy to commit securities fraud and wire fraud, according to papers filed in federal court in Manhattan.

Fleishman helped arrange for Primary Global Research clients, including hedge funds, to speak with the consultants, the papers said. The clients were told about highly confidential Apple sales forecasts information, new product features for the iPhone and a top-secret project known internally at Apple as “K48,” which became the iPad, launched this year, the complaint said.

The charges allege that 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,” U.S. Attorney Preet Bharara said in a statement.

He said the allegations describe criminal conduct that went “well beyond any legitimate information-sharing or good faith business practice.”

Primary Global Research paid four consultants more than $400,000 merely to participate in phone calls with their clients, “an indication of the value placed on the information,” said FBI Assistant Director Janice K. Fedarcyk.

“This wasn’t market research. What the defendants did was purchase and sell insider information,” Fedarcyk said, adding: “Our investigation is most assuredly continuing.”

The three consultants charged were Mark Anthony Longoria, 44, of Round Rock, Texas; Walter Shimoon, 39, of San Diego; and Manosha Karunatilaka, 37, of Marlborough, Mass.

The prosecution is an offshoot of a probe of Galleon Funds founder Raj Rajaratnam and 22 others in which prosecutors made extensive use of wiretaps, which are more common in drug and organized crime investigations. Rajaratnam has pleaded not guilty and said he only traded with information available to the public.

On wiretaps used to build evidence against those arrested Thursday, Fleishman and Longoria could be heard speaking about the Galleon probe, with Fleishman assuring Longoria that Galleon was not a client, according to court papers.

The complaint said Longoria responded: “OK. Good. I wasn’t sure. I was, like, really getting nervous.”

Richard Choo-Beng Lee, a former hedge fund co-manager who has pleaded guilty and is cooperating with the government, made some of the recordings, the complaint said.

Investigators have learned from Lee that his hedge fund’s “practice was to have its employees call a firm consultant before the consultant’s employer was expected to release its quarterly earnings, in part to obtain inside information,” the complaint said.

Longoria worked at Advanced Micro Devices Inc. as a supply chain manager, Shimoon worked at Flextronics International Limited as senior director of business development and Karunatilaka worked as an account manager at Taiwan Semiconductor Manufacturing Co. office in Burlington, Mass.

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