Sri Lankan Among Four Arrested in Wall St. Insider Probe

Manosha Karunatilaka allegedly leaked secrets to hedge funds

by Hassina Leelarathna

(December 17, Washington DC, Sri Lanka Guardian) A 37-year-old Sri Lankan was among four people arrested in New York on charges of leaking details to hedge funds about highly secretive products being developed by technology companies such as Apple and Dell ahead of their launch.

Manosha Karunatilaka, an account manager for Taiwan Semiconductor Manufacturing Co Ltd (TSMC) based in Burlington, Massachusetts was charged today with various crimes surrounding alleged insider trading. The others arrested were Walter Shimoon (VP of Business Development at Flextronics), Mark Longoria (supply chain manager at AMD), and James Fleishman (sales manager at Primary Global Research, a California-based "expert network" firm). The charges stem from secrets they divulged while working as consultants for Global Research.

A fifth defendant, Daniel Devore,formerly a Global Supply Manager for Dell, Inc., who also worked as a consultant for Primary Global, pled guilty on December 10 to charges of wire fraud and conspiracy to commit wire fraud and securities fraud.

The arrests were announced by Preet Bharara United States Attorney for the Southern District of New York, and Janice K. Fedaryck, the Assistant Director-in-Charge of the FBI’s New York Office.

According to the complaint unsealed today in Manhattan federal court, Karunatilaka had executed an employment agreement with TSMC, the world's biggest contract chipmaker, that restricted the disclosure of confidential information and prohibited any outside employment. While employed at TSMC, Karunatilaka engaged in consultation calls with Global Research clients, during which he provided confidential TSMC information related to product sales and shipping information. Between January2008 and June 2010, Global Research paid Karunatilaka more than $35,000 for consultation services he provided.

Fedaryck said that the more than $400,000 the firm paid the four consultants to participate in phone calls with firm clients, is an indication of the value placed on the information. “This wasn't market research. What the defendants did was purchase and sell insider information.”

Prosecutors said the firm advertised itself as an "independent investment research firm that provides institutional money managers and analysts with market intelligence, through a "Global Advisory Team of Experts.” The firm advertised that its team of consultants "have real-world experience in industries such as healthcare, technology, media, telecommunications, retail, manufacturing, energy and aerospace."

Fleishman is alleged to have coordinated the firm’s consultation services by arranging for clients, including hedge funds, to speak with consultants knowing that consultants would provide inside information to clients.

Shimoon , of San Diego, California, is accused of leaking confidential information shared by Apple Inc. with Flextronics employees regarding Apple products under development, including highly secretive products being developed that ultimately resulted in the public product launch of the "iPad" tablet computer as well as the “iPhone.”

"Today's charges allege that 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, whose office filed the case, said in a statement. “Over the next many months and beyond, we will continue to enforce the law, police the market, and protect honest businesses and their shareholders by working methodically with the FBI and SEC to root out corporate corruption and insider trading.”

Karunatilaka’s bail was set at $250,000 after an initial appearance in federal court in Boston. TSMC announced that it has fired Karunatilaka and that it is cooperating with federal investigators. AP quoted his lawyer as saying that Karunatilaka would appear in Manhattan court sometime in January.

Karunatilaka is the second Sri Lankan to be charged with insider trading in the US. In October 2009, authorities arrested billionaire Raj Rajaratnam, Galleon Group hedge fund co-founder, and dozens of others executives and traders, for running the biggest insider trading scheme involving a hedge fund.

Rajaratnam, 52, identified by Forbes in 2008 as #262 among America’s 400 richest people, with a net worth of $1.3 billion, was investigated by federal authorities in 2007 for alleged ties to the LTTE.

He faces 13 fraud and conspiracy counts in the insider trading case and if convicted could go to prison for more than 20 years. Rajaratnam has pleaded not guilty and is set to go on trial in February.

Today’s arrests are part of a wide swath of ongoing federal investigations which are part of President Obama’s ‘war on financial crimes.’ The Indian born Bharara, nicknamed ‘the Sheriff of Wall Street,’ serves as a Co-Chair of the Securities and Commodities Fraud Working Group, an interagency task force the president set up to aggressively target and prosecute criminal activity in the lending and financial markets.