more insider trading arrests

the arrests

Yesterday, the office of the US Attorney for the Southern District of New York announced the arrest of four more individuals, which is accuses of insider trading.  In the same press release, the Justice Department revealed that a fifth individual had already pled guilty to charges of insider trading and is scheduled to be sentenced in December 2013.

Four of them were (they’ve been fired by their companies) employees of technology firms.  The fourth works for the “expert network” firm, Primary Global Research of Mountain View, California.  PGR recruited the others, organized their contact with hedge funds and other investors and paid them a total of $400,000 for their information.  (See my posts from last month for background on this case and on expert networks.)

The announcement of the conviction and delayed sentencing of the fifth person, a global supply manager for Dell, is important for reasons not spelled out in the release.  It signals that he has agreed to cooperate with authorities in return for more lenient sentencing.  Not only will he testify about his illegal activities.  But he has presumably recorded all his PGR-related conversations since being caught some months ago–and been coached by the Feds on how to steer to telephone calls in ways that make it likely the other person will make self-incriminating statements.

I haven’t read the indictment, but the New York Times has a lot of details, if you’re interested.

not “experts” at all

What jumps out at me is that none of the four tech employees is an any way an “expert” in the tech industry.  They’re not researchers.  They’re not engineers.  They seem to have no detailed knowledge of company strategy.  They’re not veteran marketers with an experience-seasoned view on industry trends.  These are their jobs:

–supply chain manager at Dell–paid $145,750 by PGR

–supply chain manager at Advanced Micro Devices–paid $200,000+

–business development at Flextronics, a contract manufacturer with Apple as a client–paid $22,000

–account manager at Taiwan Semiconductor Manufacturing Company–paid $35,000

They were all mid-level employees who had signed confidentiality agreements with their firms.  The supply chain guys would have had access not only to their own management control computers but those of their suppliers and customers.  The Flextronics guy had access to Apple plans and orders.  The TSMC employee had detailed information about orders from the foundry’s customers, which would have represented most or all of the business being done by the fabless semiconductor design firms who use TSMC.

What do the four have in common, other than working for PGR?  They all had physical access to inside information, which they apparently blissfully revealed to outsiders, sometimes in staccato bursts of phone calls just before earnings were reported.

This isn’t a collection of industry experts.  It’s an industrial espionage ring.

It seems to me yesterday’s announcements are confirmation that this ongoing insider trading investigation is not about borderline or inadvertent violations of securities laws.  Rather, it’s about highly organized, years-long, deeply criminal activity.