Apple's Stock Surge Makes Its Secrets a Big Target

by: Larry Dignan

By Larry Dignan

A massive insider trading probe focused on expert networks illustrates just how valuable Apple’s (NASDAQ:AAPL) secrets - product roadmaps, new features and forecasts - have become.

On Thursday, the Feds arrested four people in an insider trading probe. According to the FBI, the U.S. government alleges that James Fleishman, an executive at Primary Global Research, used four consultants employed by public companies to deliver confidential information. The companies were AMD (NYSE:AMD), Flextronics (NASDAQ:FLEX), Dell (NASDAQ:DELL) and TSMC. The Holy Grail for traders looking to game the system, however, were details about Apple’s plans via Flextronics, a contract equipment manufacturer. A Flextronics employee, Walter Shimoon, had the goods on Apple trade secrets through a contract manufacturing relationship. Flextronics supplied camera modules to Apple.

The AP says a government complaint details how Primary Global Research clients were told about Apple’s trade secrets including sales forecasts, new iPhone features and a project known as K48, which became the iPad.

According to the complaint read by ZDNet, Shimoon knew:

  • A new iPhone “is gonna have two cameras.”
  • The iPad first generation didn’t have a camera, but was in “a new category altogether.”
  • Knew the code name for the iPad as K48 and then noted that “at Apple you can get fired for saying K48.” Of course that didn’t stop Shimoon from yapping.
  • And sales projections for the iPhone and iPod.

It’s no surprise that Apple secrets were so highly coveted. Check out the two-year chart:

Click to enlarge

An FBI statement notes that Shimoon, a Flextronics employee, spilled the details about Apple’s products to Primary Global. Here’s what the FBI had to say:

As part of this business relationship, Flextronics and certain Flextronics employees were provided with information and forecasts regarding Apple purchase or shipping orders regarding certain Flextronics components, as well as information regarding alternative suppliers for Apple products. The confidentiality of this kind of information was governed by non-disclosure agreements executed between Flextronics and Apple. In addition, Apple often shared information with Flextronics about future Apple products under development. The confidentiality of this information was governed by a separate non-disclosure agreement executed between Flextronics and Apple. For example, in or about 2009, Apple informed Flextronics about a highly secretive project being developed that ultimately resulted in the public product launch of the “iPad” tablet computer.

Shimoon had a confidentiality agreement in place, but had a series of calls with Primary Global Research between January 2008 and June 2008 detailing the upcoming iPhone and sales forecasts. The real rub is that Shimoon only got paid $22,000 in consulting fees.

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