Five current and former expert consultants at Primary Global Research of Mountain View, CA, an expert-network firm, were charged for leaking, or for facilitating in the leaking, of confidential corporate information.  The tippees are said to be hedge funds and others who were willing to pay for nonpublic information on sales figures for companies like Dell and AMD (Advanced Micro Devices), as well as providing details about new products like the Apple iPhone. 

Expert-network firms, which are at the epi-center of the federal investigation into insider trading, have emerged over the last decade as the research departments of large Wall Street banks have retrenched - in large part, due to Regulation Fair Disclosure, a decade-old SEC rule that requires publicly traded companies to disclose material information to all investors at the same time.

Reg. FD has spawned a generation of expert-network firms that connect traders to the employees of publicly-traded companies who were paid to provide insights into their businesses.  Yesterday's charges are an outgrowth of a sprawling insider trading case built around the prosecution of Raj Rajaratnam, the billionaire hedge fund manager and co-founder of the Galleon Group.  So far, the DOJ has charged 23 people related to that case, 14 of whom have pleaded guilty.

    Sources Used By Investigators.   Federal prosecutors relied on a wide-ranging patchwork of sources, including 5 cooperating witnesses, recorded conversations, e-mail records and tapped phones.  In particular, 2 witnesses were cited as being extremely valuable in the government’s complaint: (i) a person with extensive experience evaluating technology companies whose identity was not disclosed;  (ii) Richard Choo-Beng Lee, former hedge fund manager implicated in the Galleon case who began cooperating with authorities in April 2009. 

Mr. Lee, who founded the CA-based hedge fund Spherix Capital, is alleged to have had a relationship with Primary Global in 2008 and 2009, during which time he contacted a number of consultants retained by the company.  To gain insider information, the complaint states, Spherix called consultants who worked at public companies before their employers released quarterly earnings.  One such contact was with Don Chu, an executive at Primary Global who was arrested in New Jersey last month on insider trading charges.

    Players Who Were Arrested.   The four arrested on Thursday were:

• Walter Shimoon, senior director of business development at Flextronics in San Diego;
• Mark Longoria, supply chain manager at Advanced Micro Devices in Texas;
• Manosha Karunatilaka, account manager at the Taiwan Semiconductor Manufacturing Company;
• James Fleishman, VP and sales manager at Primary Global Research.

All four of the technology employees no longer work for their companies.  Mr. Fleishman is on leave, a Primary Global spokesman said.

Daniel DeVore, who worked as a global supply manager at Dell, entered a guilty plea and is cooperating with authorities.  According to his plea deal, Mr. DeVore had received more than $145K for inside information that he shared with NY-based hedge funds and other Primary Global clients between 2007 and 2010.  "Information I provided came from internal Dell reports to which I had access.  I was not authorized to disclose this nonpublic information to outsiders."  Mr. DeVore will be sentenced in December 2013.

For further details, click onto:  [NYT Dealbook, "5 Accused as Insider Trading ...", 12/16]