(CNN) — A Navy intelligence specialist was charged Thursday in an espionage sting in which he allegedly sold documents marked “Top Secret” and “Secret” to an undercover FBI agent, according to the Navy.
The charges against Spc. 2nd Class Bryan Minkyu Martinare are for attempting to forward classified information to a person not authorized to receive such information, according to the Navy statement.
A court-martial date has not been set.
Martin is charged with four specifications of attempted espionage and 11 specifications of mishandling classified information, the Navy said.
All charges stemmed from incidents that allegedly occurred while Martin was assigned to the Expeditionary Combat Readiness Center at Joint Expeditionary Base Little Creek – Fort Story in Virginia, the Navy said.
Martin was apprehended by special agents of the Naval Criminal Investigative Service and the FBI on December 1, in Fayetteville, North Carolina, after he was suspected of attempting to sell classified information.
Martin is currently being held in Naval Brig Norfolk in Virginia.
According to an affidavit filed in U.S. District Court last December, Martin, 22, met with an FBI undercover agent posing as an intelligence officer of an unnamed foreign country three times at a motel in Fayetteville, near the Fort Bragg Army base, where he had been working since September.
The court documents alleged he was paid a total of $3,500 in cash, and he handed over documents marked “Top Secret” and “Secret” and signed receipts for two of the payments.
“Investigators have a high level of confidence that no classified information was actually delivered to any unauthorized persons,” an NCIS statement last December said.
The Navy did not release details of how Martin came to the attention of the investigators or how he allegedly made contact with the agent posing as a spy.
PARIS – Renault will face consequences over a case of suspected industrial espionage in which the carmaker has said it may have been tricked, French Finance Minister Christine Lagarde said on Friday.
Renault admitted for the first time in an interview in Le Figaro’s Friday edition that it had reasons to doubt it had been a victim of industrial espionage.
The carmaker had fired three executives and lodged a legal complaint in January over suspicions of spying targeting its high-profile electric vehicle programme, amid fears that information had been passed to a foreign power.
“What counts today is getting to the truth and getting there quickly, and if the suspicions were unfounded that justice be done, confidence restored and compensation paid,” Lagarde said in an interview on RMC radio.
The minister added that “all the consequences” would have to be faced in terms of responsibility for the affair.
The case has strained relations between Renault — which is 15 per cent state-owned — and the government, as the carmaker came under fire for not informing authorities of its suspicions soon enough and carrying out its own investigation first.
The affair had also threatened to spark a diplomatic spat when news of the sackings broke in January, after a government source said investigators were following up a possible link with China in initial probes before a formal inquiry was launched.
“One shouldn’t shoot without a sight or accuse without proof,” Ms Lagarde told RMC.
Renault’s lawyer, Jean Reinhart, said on Thursday that French intelligence services were still probing the existence of bank accounts in Switzerland and Liechtenstein as part of the inquiry and dismissed reports the carmaker had been tricked.
The existence of the possible accounts is a key part of the case against the three fired executives.
But Renault chief operating officer Patrick Pelata told Le Figaro “a certain number of elements lead us to doubt”, adding that the company had arrived at two hypotheses.
“Either we are confronted with a case of espionage and a senior security executive is protecting his source despite everything,” he said. “Or Renault is the victim of a manipulation, which we don’t know the nature of but which could be a fraud.”
Mr Pelata said he would propose reinstating the three executives — all of whom have said they have done nothing wrong and are suing Renault — and making good any injustice if “all the doubts are lifted”.
“When the inquiry is finished, we will accept all the consequences up to the highest level of the company, that is to say up to myself,” Mr Pelata said, adding that in either case the company was a “victim”.
March 4 – France faced the potential of severe political embarrassment on Friday after carmaker Renault RENA.PA threw doubt on the spying accusations that shook the company to its core and threatened a diplomatic spat with China. [ID:nLDE7230I7]
Here is what has happened so far in the espionage scandal which broke at the start of the year:
August 2010 – Renault’s compliance committee receives an anonymous “ethical alert” triggering an internal investigation.
October 2010 – Renault unveils the near street-ready version of its Zoe electric car, due for launch in 2012. Partner Nissan Motor Co 7201.T shows off its Leaf electric car which it will begin selling in multiple markets a few weeks later.
— Renault prepares to launch the Fluence and Kangoo electric vehicles and the Twizy two-seater electric city car.
Jan. 3, 2011 – Renault suspends three executives, including one member of its management committee. It later emerges that the three are Michel Balthazard, senior vice-president of advance engineering, his number two Bertrand Rochette and Matthieu Tenenbaum, deputy head of the electric vehicle programme.
The company says it plans legal action over alleged leaks of data, prompting a French official to warn of “economic war” and risks to French industry.
Jan. 4 – French Industry Minister Eric Besson visits the Renault Technocentre near Paris, the hub of the company’s electric vehicle programme.
Jan. 7 – French intelligence service the DCRI is looking into the case and a possible Chinese connection, a government source says.
Jan. 8 – Renault says an international network may have obtained data about the costs and economic model of its electric car programme but vital technology secrets — including 200 patents that are being lodged — are safe.
Jan. 11 – Speaking to journalists outside Renault’s headquarters following a meeting with management, Balthazard denies any wrongdoing.
— Tenenbaum’s lawyer says his client was accused on the basis of an anonymous letter which said he had received bribes.
— Rochette later tells RTL radio he is “amazed” at the accusations and had nothing to do with leaking information in return for bribes, as Renault alleged.
— China denies any link to industrial espionage, dismissing reports of its possible involvement as “baseless”.
Jan. 12 – France plays down the possibility of a link to China, saying it is not accusing any one country.
Jan. 13 – Renault sets the scene for a lengthy judicial process by lodging a complaint against “persons unknown” on counts of organised theft, aggravated breach of trust and passing intelligence to a foreign power, Paris prosecutor Jean-Claude Marin says.
— Renault says it has discovered serious misconduct detrimental to its “strategic, technological and intellectual assets”.
Jan. 14 – French state prosecutors launch an inquiry into industrial espionage at Renault.
— France’s DCRI has been charged with the investigation.
Jan. 19 – The three executives, now fired by Renault, say they plan to take legal action against the French carmaker.
Jan. 23 – Chief executive Carlos Ghosn says the suspected espionage appears to have been aimed at uncovering Renault’s investment model for its electric vehicles but declines to provide specifics of what proof Renault has of the espionage.
March 3 – Renault’s lawyer Jean Reinhart tells Europe 1 radio that the authorities were still investigating foreign bank accounts and dismisses media reports that the company had been tricked into believing it had been a victim of industrial espionage.
March 3 – Chief Operating Officer Patrick Pelata later tells newspaper Le Figaro in an interview that the company has some reasons for thinking it may have been tricked.
March 4 – Renault will “face consequences” after saying it might have been tricked into launching the investigation, says French Finance Minister Christine Lagarde. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For related Special Reports see:
http://link.reuters.com/pyc77r
http://r.reuters.com/gej38r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ (Compiled by David Cutler, London Editorial Reference unit in London and Helen Massy-Beresford in Paris; Editing by Greg Mahlich)
No Big 4 audit firms or their partners have been named in the insider trading scandal surrounding the now-defunct hedge fund Galleon Management. But the SEC has accused one of the most prominent businessmen ever implicated in such crimes, Rajat Gupta, a former McKinsey Company Global Managing Director.
Monadnock Research: Gupta is alleged to have tipped Galleon’s Rajaratnam, a friend and business associate, providing him with confidential information learned during board calls and in other aspects of his duties on the Goldman and PG boards. Gupta reportedly made calls to Rajaratnam “within seconds” of leaving board sessions where market-moving information was discussed.
The complaint alleges that Rajaratnam then either used the inside information on Goldman and PG to execute trades on behalf of some of Galleon’s hedge funds, or shared it with others at Galleon, who then traded on it ahead of public disclosure. The SEC claims the insider trading scheme generated more than $18 million in a combination of illicit profits and loss avoidance.
Gupta, as a McKinsey veteran, embodied the “trusted advisor” consulting ethos and personified the McKinsey “advisor to CEOs” business strategy and brand. The firm’s value to its clients and its effectiveness as an advisor requires knowing their secrets and holding them close to the vest.
If the charges against Gupta prove true, it could be a mortal threat to the firm. Even if there’s no evidence that confidentiality was breached while Gupta was at the firm, being led by a man who would later leak insider information would be devastating. If Gupta is shown to have engaged in similar actions while he was at McKinsey, that could be the end for the Firm.
“At that point, I think we go the way of Arthur Anderson,” another former McKinsey consultant said, referring to the once-prestigious accounting company brought down by its connections to Enron.
Loose Lips, Reuters BreakingViews, Robert Cyran and Rob Cox, March 3, 2011
According to McKinsey, “Our clients should never doubt that we will treat any information they give us with absolute discretion.” The allegations against Gupta make it hard for clients not to wonder.
In my opinion, extrapolating Gupta’s behavior to McKinsey as a whole is a stretch. I’m no McKinsey apologist but one man, even a former Global Managing Director, does not make the firm.
On the contrary. The firm made him and he’s the one whose currency is now worth less.
It’s understandable that, in the heat of this moment, some might naïvely compare the consequences of the criminal indictment of an audit firm with civil charges against an individual, albeit one who trades on his association with a prestigious professional services firm.
Being an insider with a fiduciary duty sure is risky, as heavyweight Rajat Gupta is now finding out amidst serious SEC charges. So is having board members, as Goldman Sachs and Procter and Gamble are now worrying. Of great concern to each are the reputational risks and attendant costs that this might impose on them.
One thing this story gets slightly wrong is the fiduciary duty of a director. Directors have a duty only to the corporation. That might change some directors’ views of where their bread is buttered. Did Gupta think that if he spread the love around enough, everyone would be happy?
Monadnock Research’s Mark O’Connor cites an interview with Gupta in May 2001 by Wharton Professor Jitendra Singh. [i] In it, Gupta gives some advice to those just starting their careers:
Gupta: …The second piece of advice I’d give is that I think it is vitally important to make other people successful. If you have a mindset of always trying to make other people successful, they will in turn make you more successful that you ever dreamed-of. So, I really believe that it’s not about getting ahead at the expense of others, it is getting ahead because lots and lots of people are helping you achieve it.
When the Big 4 audit firms are hit with insider trading scandals – and there have been some whoppers recently – they manage reputational risk in two ways:
They ignore reports in the media, giving either no comment or minimal comments that distance them from the accused.
They do everything possible to repair relationships with clients, including paying them off.
A Deloitte active-duty Vice Chairman, Thomas Flanagan, was accused and settled with the SEC this past summer over insider trading charges related to several Fortune 500 companies. Auditors have a public duty to shareholders and a legal obligation under federal securities laws to maintain engagement confidentiality, in addition to their contractual obligation to do so. And yet the Flanagan story captured only momentary media attention and no one claimed Deloitte was going down as a result.
The SEC gave Deloitte credit for software, manuals, and controls that may have been designed effectively, but those controls surely did not, in the Flanagan case and the hundreds of other examples of non-compliance cited by the PCAOB, operate effectively. Deloitte did not discover Flanagan’s sins. According to the Financial Times, FINRA discovered the abnormalities in activity via normal market monitoring activities during Walgreen’s acquisition of Option Care.
Deloitte’s audit clients – Walgreens, Best Buy, Sears Holdings and others – received calls from the SEC. Then the SEC and the clients called Deloitte. Deloitte forced Flanagan to “retire” and then sued him to assuage their clients.  Deloitte’s claim against Flanagan cited potential costs in reimbursing clients for their investigations.
Deloitte did reimburse some clients: $456 thousand to Sears, $79 thousand to Best Buy, for example. Deloitte’s audit clients, of course, made the quick, universal decision that their auditor was still independent. Those companies would have otherwise experienced the ignominy of admitting that a non-independent audit firm had attested to prior-filed financial statements. Those companies would have been vulnerable to lawsuits, may have had to pay for a new audit for the affected years, and would have had to change auditors in a hurry – a messy and expensive proposition for a large public company.
There are disclosures in almost all the proxies. They look like they were all written by the same lawyer.
Following these investigations, DT and our management advised the Audit Committee that no evidence was discovered that indicated that the former advisory partner had any substantive responsibility for or role in the conduct of the audit. DT delivered a letter to the audit committee stating that, despite the trades in our securities by their former advisory partner and the resulting violation of the SEC’s independence rules, the former advisory partner had not exercised any influence over the conduct of the audit or its conclusions with respect to the audit or accounting consultations, that the objectivity of the persons responsible for the actual conduct of the audit had not been affected by the former advisory partner’s actions, and that DT’s independence was not impaired…
Closer to the kind of work McKinsey’s Gupta did for clients, we have another senior Deloitte partner accused of insider trading, Arnold McClellan. He advised private equity firms about the tax implications of proposed acquisitions. The level of trust – and consequences of a betrayal of that trust – in MA advisory is akin to the level of trust expected of a company director. Interestingly, the two cases have a company in common – Kronos.
The McClellan case is pending but, in spite of being the second one for Deloitte in such a short time and with allegations of tipping others for profit that covered the same time period as the Flanagan case, Deloitte is still kicking consulting ass and taking names, including for the federal government.
Statement of Gary Naftalis, Counsel for Rajat Gupta
These allegations first made by the SEC are totally baseless. Mr. Gupta’s 40-year record of ethical conduct, integrity, and commitment to guarding his clients’ confidences is beyond reproach. Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder.  There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo. In fact, Mr. Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity.
[i] McKinsey’s Managing Director Rajat Gupta on leading a knowledge-based global consulting organization; Volume 15 No. 2.
One of the more common predictions for 2011 among industry-watchers is that smartphone malware will become more common as smartphones grow more popular. But even feature phones are vulnerable to attacks.
Collin Mulliner and Nico Golde – students in the Security in Telecommunications department at the Technische Universitaet Berlin – have demonstrated a so-called “SMS Of Death” attack on feature phones made by LG, Motorola, India-based Micromax Nokia, Samsung and Sony Ericsson that exploits the ability of the SMS protocol to send “binaries” (small programs) to the handset.
Cellcos use this function to remotely change phone settings, but attackers can use it to send malicious messages that can shut down the phones. While the attack requires the attacker to know the type phone someone is using, they can easily send five malicious SMSs targeting the top five handset models in that market and knock large numbers of users off the network, according to Technology Review.
The availability of Web-based bulk SMS services make this kind of attack both cheap and easy, Mulliner says.
Cellcos have two options to prevent such an attack, according to the TR report: update the firmware of existing phones, or filter SMS traffic for malware, the latter of which is tough because SMS filters are designed to block spam, not binaries.
