Global articles on espionage, spying, bugs, and other interesting topics.

Apple, Dell, AMD – Insider Trading & Information Theft

The arrests of three technology company workers who allegedly sold secrets about Apple Inc., Dell Inc. and Advanced Micro Devices Inc. signal the U.S. may be closing in on the hedge funds that paid for their expertise.

The men, who worked at AMD, Flextronics International Ltd. and Taiwan Semiconductor Manufacturing Co., were arrested yesterday on securities fraud and conspiracy charges for a scheme that Manhattan U.S. Attorney Preet Bharara said operated from 2008 to early 2010.

Also arrested was James Fleishman, a sales manager at Primary Global Research LLC, the expert-networking firm where the three worked as consultants. If convicted, all four face as long as 20 years in prison.

“Prosecutors will want to pursue the hedge funds that hired the expert consultants to give them insider information,” said Stephen Miller, a lawyer at Cozen O’Connor LLP and a former federal prosecutor in New York and Philadelphia.

A fifth man, Daniel DeVore, 46, formerly a supply manager at Dell, pleaded guilty to conspiracy to commit securities fraud and wire fraud in federal court in New York on Dec. 10, the U.S. said yesterday. DeVore said he worked as a paid consultant for Primary Global from late 2007 to August 2010 and, through the firm, accepted money from hedge funds for inside information.

Expert-networking companies such as Mountain View, California-based Primary Global match investors with specialists who provide insight into specific markets. The criminal complaint unsealed yesterday describes the links among Primary Global, the technology experts it employed and unidentified hedge funds willing to pay for inside information.

Search Warrants

On Nov. 22, Federal Bureau of Investigation agents from New York and Boston executed search warrants at the offices of Level Global Investors LP and Diamondback Capital Management LLC, hedge funds founded by alumni of SAC Capital Advisors. Agents that day also executed a search warrant at the offices of Loch Capital Management. None of the firms or their employees has been accused of any wrongdoing.

At his Dec. 10 plea hearing, DeVore said he worked for Primary Global as an intermediary and “provided information to money managers” knowing they would use it to trade securities. He told the judge he gave the inside information to clients of Primary Global and Guidepoint Global LLC, a research firm.

Guidepoint was subpoenaed by Massachusetts Secretary of the Commonwealth William F. Galvin in November in connection with its relationship to a hedge fund in the state.

‘Corrupt Network’

“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,” Bharara said in a statement yesterday.

The four men charged yesterday are the latest in a series of arrests since the Nov. 24 arrest of another Primary Global employee, Don Chu, charged with arranging for insiders at publicly traded companies to improperly provide material information to hedge fund clients of the consulting firm where he worked.

“This wasn’t market research,” said Janice Fedarcyk, assistant director-in-charge of the FBI’s New York Office. “What the defendants did was purchase and sell inside information.”

Phone Taps

Investigators made consensual and wiretap recordings of an unidentified expert-networking firm’s phones, the land lines of an unidentified hedge fund and the mobile phones of two of the men arrested yesterday — Mark Anthony Longoria, who worked at chipmaker AMD, and Walter Shimoon, formerly of Flextronics, a Singapore-based maker of electronic components — the U.S. said. At least two hedge funds are described in the complaint. Neither is identified by name.

“Few hedge fund managers have the investment skill to deliver the benefits that they promise,” James Fanto, a professor at Brooklyn Law School in New York, said in an e-mail. “They have to find an edge however they can — in this case through the expert networks,” said Fanto, who teaches banking, corporate and securities law.

The case is the latest by Bharara’s office alleging wrongdoing involving hedge funds based on wiretap evidence. He announced charges against Raj Rajaratnam, 53, the co-founder of Galleon Group LLC, in October 2009, calling it the largest insider-trading case involving hedge funds.

The FBI recorded thousands of conversations during their investigation of that case, lawyers said at an October hearing in Rajaratnam’s case. Rajaratnam, who denies the charges, is scheduled to go on trial next year.

Hedge-Fund Phone

In the latest case, the FBI listened in on two telephones used by Primary Global from 2009 to 2010 and the landline of a California-based hedge fund from October 2008 to February 2009, the complaint says.

According to the complaint, the U.S. also made consensual recordings using five cooperating witnesses, had a tap on mobile phones used by Shimoon and Longoria, and recorded conversations at Primary Global in November 2009, a month after Rajaratnam’s arrest.

“If you think you shouldn’t be talking about it –don’t,” an unidentified Primary Global employee tells Shimoon during one call, according to the complaint.

“That would really suck if you recorded all the calls,” Shimoon replies.

This kind of talk can help the government’s case, said Miller, the former federal prosecutor.

‘Gets His Wings’

“A prosecutor angel gets his wings every time someone says ‘Boy, it would really stink if they were taping our calls,’” he said.

Fleishman, 41, of Santa Clara, California, was charged with wire fraud and conspiracy for allegedly trying to give non- public information to clients, including hedge funds, according to the complaint. Longoria, 44, of Round Rock, Texas; Shimoon, 39, of San Diego; and Manosha Karunatilaka, 37, of Marlborough, Massachusetts, who worked at chipmaker Taiwan Semiconductor, were charged with wire fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud.

Fleishman appeared in federal court in San Jose, California, yesterday and was released on $700,000 bail. Longoria was granted $50,000 bail and freed by a federal magistrate in Austin, Texas. Karunatilaka got bail of $300,000 in Boston federal court, his lawyer, Brad Bailey, said.

Shimoon Fired

Shimoon made his first court appearance today in San Diego, where a judge refused to grant him immediate bail after a prosecutor said there’s a “serious” risk he’ll flee if released. A bail hearing is scheduled for Dec. 20.

Flextronics said Shimoon has been fired.

“PGR clients were money managers, including hedge funds, many of whom were located in Manhattan,” DeVore told U.S. District Judge Jed Rakoff at his plea hearing, according to a court transcript.

“I provided to PGR clients and to PGR employees material non-public information, Dell confidential information, Dell’s production numbers, pricing inventory and market share of Dell’s hard drives suppliers,” he said. “I also knew that on several occasions I was speaking with hedge fund managers and employees located in New York.”

David Frink, a spokesman for Round Rock-based Dell, the world’s third-biggest maker of personal computers, said the company will cooperate with law enforcement. DeVore’s lawyer, Johnny Sutton, declined to comment.

Longoria, Karunatilaka and Shimoon had worked as consultants at Primary Global, Dan Charnas, a company spokesman, said in an e-mailed statement. Fleishman has been placed on leave, Charnas said. He had no further comment.

‘Expressly Prohibited’

Longoria resigned from AMD in October, said Mike Silverman, a spokesman for the Sunnyvale, California-based chipmaker.

“This kind of activity is expressly prohibited by the company,” Silverman said.

Longoria is cooperating with the investigation, Sam Bassett, his lawyer, said in an interview yesterday.

Flextronics supplied components to Apple during the time of the alleged fraud, prosecutors said in the statement. Shimoon is accused of providing Fleishman’s firm with confidential sales forecast information and new product features for the iPhone.

Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment.

Taiwan Semiconductor said in an e-mail it terminated Karunatilaka’s employment on the day of his indictment and that the chipmaker will cooperate with U.S. prosecutors.

Five Helpers

The new complaint indicates five people have been working with the government in the insider-trading probe. Only one witness was identified by name: Richard Choo-Beng Lee, 56, a former partner at San Jose, California-based hedge fund Spherix Capital LLC. He began cooperating with the U.S. in April 2009, court records show, providing information to Bharara’s office in the government’s case against Galleon. He pleaded guilty in November 2009.

His partner at San Jose, California-based Spherix, Ali Far, who also worked as an analyst and portfolio manager at Galleon, also pleaded guilty and is aiding the U.S. in the Galleon probe.

The U.S. said Chu established a relationship with Lee and that Spherix paid Chu’s firm for tips concerning Atheros Communications Inc., Broadcom Corp. and Sierra Wireless Inc., according to the government’s complaint.

The complaint unsealed yesterday lists four cooperators without naming them: a Dell manager, a Primary Global analyst, a New York hedge-fund analyst and a witness “who had substantial experience evaluating public companies in the semiconductor and technology industries.”

Shorter Sentence

With the exception of the hedge-fund analyst, who hasn’t been charged with any crimes, the witnesses have agreed to plead guilty and are cooperating in the hope of receiving a reduced sentence, prosecutors said.

In July 2009, Lee recorded conversations in which Longoria gave him inside information about AMD, the U.S. said in its complaint. The new complaint also identifies Chu as having worked at Fleishman’s firm as a liaison “to consultants and other sources of information in Asia.”

In January, former McKinsey & Co. director Anil Kumar pleaded guilty to criminal charges, saying that he leaked advance information to Rajaratnam about AMD’s acquisition of ATI Technologies Inc. in 2006, which Rajaratnam used to make $19 million for Galleon.

Bharara thanked Apple, Flextronics, AMD, Taiwan Semiconductor and Dell for their assistance in the U.S. probe. The investigation is continuing, he said.

“You have to imagine it will go in the direction of the funds,” said Miller, the former federal prosecutor.

The case is U.S. v. Shimoon, 10-mj-2823, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York federal court at pathurtado [at] bloomberg [dot] net; Bob Van Voris in New York federal court at rvanvoris [at] bloomberg [dot] net.

Article source: http://www.bloomberg.com/news/2010-12-17/new-technology-insider-trading-arrests-point-prosecutors-to-hedge-funds.html

Health bodies eavesdrop on online moans

People grumbling to friends about their health or waiting times at hospitals is nothing new. But as more choose to do so on internet forums and social networks such as Twitter and Facebook, they may be surprised to learn that hospitals and healthcare professionals are “listening in”.

Organisations such as the Care Quality Commission, the health and social care regulator, and several NHS hospitals are starting to trawl the web for clues about where they need to investigate low standards or direct extra resources.

Social-media monitoring is becoming common in the private sector, as companies listen out for complaints about their own services, or those of competitors, to help poach customers.

In the public sector, where the pace of technological change is often glacial, “eavesdropping” on online conversations can tap opinions from people who may not want to fill in a formal survey form.

The commission has been working with Qinetiq, the defence technology company and former government agency, to help it scan and automatically categorise internet comments. Similar technology is used by security services to look for terrorist “chatter” online.

The commission plans to pilot the service early next year, initially looking at comments on hospital websites, local news reports and health forums – all with the intention of helping its inspectors to prioritise the sites they need to investigate more closely.

The system, which builds on its existing information gathering and management technology, could then be extended to Twitter and Facebook, said Richard Hamblin, the commission’s director of intelligence.

From next spring, the commission will regulate 45,000 nursing homes, GP surgeries, dental practices and other healthcare outfits, up from 27,000 today – although it will not have new funds to increase its team of inspectors in proportion.

“We are being forced to think about how to do more with less,” said Mr Hamblin. “Even if you quadrupled [staffing], you would not get round as many as you would want to, so you need to get smarter about where the biggest risks are and concentrate resources there.”

The agency uses a team of four to categorise manually about 1,000 comments from 15 different sources every month. It is testing cutting-edge linguistic technology developed by a team at Oxford University to categorise automatically more qualitative information.

That will allow new data to be processed from a greater number of sources from around the web, and the same team can move into more sophisticated tasks, analysing the results. The project is likely to cost less than half that of processing the information manually over its first year.

Within the NHS, many hospitals – including London’s St George’s Trust, West Middlesex and Barts – and primary care trusts have created Twitter and Facebook accounts.

Although most use social networks only to share information and health tips, some are used to scan for patients tweeting about their ailments or treatment, mentioning the hospital’s name.

A group of NHS social media enthusiasts hold a virtual meeting on Twitter every Monday to discuss how best to use the new channels.

Samuel Ridge, senior communications manager for St George’s Trust, said the hospital had picked up on concerns tweeted by a kidney patient and photographs posted of damaged facilities.

“[Patients] speak openly and honestly in what is a friendly but public environment. These informal forums don’t exist within the NHS,” he said.It’s quite early days but we have quite comprehensive monitoring in place. It gives us a clear impression about what people feel about us as a hospital and the NHS.”

Mr Ridge admits that this “eavesdropping” could raise questions about patient confidentiality. His team is careful not to reveal personal information by replying to patients in public; individual follow-ups are always made by phone, e-mail or private message.

“We are not playing big brother,” Mr Ridge says. “If we can provide support to patients via that medium, it’s a brave step to make but there might be some strong patient benefits.”

Lebanon finds Israeli spying devices

Lebanese Armed Forces dismantled hi-tech and complex Israeli spying devices in the Bekaa Valley, a Press TV correspondent reported on Monday.

The discovery comes as earlier last weekend, the Lebanese Foreign Ministry lodged a complaint with the UN through its mission in New York.

The ministry denounced the act of espionage as a violation of Lebanon’s sovereignty, international law and the UN Security Council Resolution 1701.

The UN resolution ended Israel’s 2006 war on Lebanon that killed about 1,200 Lebanese people — mostly civilians.

Israeli espionage “is in clear violation of resolution 1701,” Lebanese President Michel Sleiman said earlier in December.

The Lebanese army, acting on an alert coming from the resistance movement of Hezbollah, has discovered and dismantled several Israeli espionage devices over the course of the past month.

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Germans charged with espionage in Iran meet with families

(CNN) — Two German journalists charged with espionage in Iran for interviewing the son and lawyer of a woman condemned to die by stoning have met with family members, Iranian officials said Tuesday.

The meeting took place Monday night in the northwest city of Tabriz — where the German nationals were arrested, Iran’s foreign ministry spokesman Ramin Mehmanparast told reporters at his weekly news conference.

“On the basis of humanitarian grounds, this meeting has been made possible,” Mehmanparast said.

The families also met with Ali Akbar Salehi, Iran’s foreign minister.

The relatives traveled to Iran on Friday accompanied by Brand Erbel, the German Ambassador to Tehran, Iran’s semi-official Mehr news agency reported.

“The status of their case depends on the legal proceedings and the judiciary officials proceeding. If they have not committed a crime, then they will be released. And if they have, then they will be dealt with properly,” Mehmanparast said Tuesday.

The two men, identified only as a reporter and photojournalist, were arrested in October after they interviewed the son and lawyer of Sakineh Mohammadi Ashtiani, who was convicted of adultery in 2006 and sentenced to death by stoning.

“Their reports and propaganda in Tabriz proved that they are in the country for spying,” Malek Ajdar Shafiee, the head of the Justice Department of East Azarbaijan, was quoted as saying by Iran’s semi-official Fars News Agency.

Iran sentences Israel spy to death

“This spy, whose identity will be announced after the verdict is approved, has been sentenced to death,” Jafari-Dolatabadi said on Sunday.

“This person who worked as a spy for Israel has been sentenced to death. The sentence will be carried out after judicial and executive processes,” he added.

He went on to say that other cases of espionage were being investigated by the prosecutor’s office, IRNA reported.

In October, Iran arrested seven individuals, who had collaborated with Israeli intelligence services, on charges of espionage.

Iranian officials say one of the spies was involved in counterrevolutionary activities, and one was working on issues pertaining to the country’s domestic affairs.

Five others were arrested for infiltrating the country’s administrative institutions and passing classified data to foreign countries.

These spies supplied the enemy with information on Iran’s judiciary, military and space agencies, among other things, prior to their arrest.

Israel runs spy cells in many countries around the world. It is also the only Washington ally to openly spy on the United States.

In recent years many Tel Aviv-linked individual have been arrested in countries like Egypt, Lebanon and Syria on espionage charges.

US-born Jonathan Pollard was sentenced to life on charges of spying for Tel Aviv 25 years ago, and his case has been a source of tension between the United States and Israel.

More than 100 people have been arrested in Lebanon on suspicion of spying for Israel since April 2009. Among them are telecom employees, members of the security forces and active duty troops.

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