SEC Brings Expert Network Insider Trading Charges

The Securities and Exchange Commission has charged that six expert network consultants and employees illegally tipped hedge funds and other investors to generate nearly $6 million in illicit gains. The charges stem from the SEC's ongoing investigation into the activities of expert networks that purport to provide professional investment research to their clients. 

The SEC alleged that four technology company employees, while moonlighting as consultants or "experts" to Primary Global Research LLC (“PGR”) without the knowledge of their employers, abused their access to inside information about such technology companies as AMD, Apple, Dell, Flextronics, and Marvell. The consultants received hundreds of thousands of dollars in purported consulting fees from PGR for sharing the inside information with PGR employees and clients, according to the SEC. The SEC charged two PGR employees for facilitating the transfer of inside information from PGR consultants to PGR clients.
 
"Company executives and other insiders moonlighting as consultants to hedge funds cannot blatantly peddle their company's confidential information for personal gain," said Robert Khuzami, Director of the SEC's Division of Enforcement. "These PGR consultants and employees schemed to facilitate widespread and repeated insider trading by several hedge funds and other investment professionals."
 
The SEC's complaint alleged that PGR consultants Mark Anthony Longoria, Daniel L. DeVore, Winifred Jiau and Walter Shimoon obtained material, non-public confidential information about quarterly earnings and performance data and shared that information with hedge funds and other clients of PGR who traded on the inside information. PGR employees Bob Nguyen and James Fleishman acted as conduits by receiving inside information from PGR consultants and passing that information directly to PGR clients, according to the SEC.
 
The SEC alleged that:
 
Longoria, a manager in AMD's desktop global operations group, had access to sales figures for AMD's various operational units. He also obtained from a colleague AMD's financial results, including "top line" quarterly revenue and profit margin information prior to their public announcement. Longoria shared this inside information with multiple PGR clients who, in turn, traded in AMD securities. From January 2008 to March 2010, Longoria received more than $130,000 for talking to PGR and its clients.
 
DeVore, a Global Supply Manager at Dell, was privy to confidential information about Dell's internal sales forecasts as well as information about the pricing and volume of Dell's purchases from its suppliers. DeVore regularly provided PGR and PGR clients with this inside information so it could be used to trade securities. From 2008 to 2010, DeVore received approximately $145,000 for talking to PGR and its clients.
 
Shimoon, a Vice President of Business Development for Components in the Americas at Flextronics, was privy to confidential information concerning Flextronics and its customers including Apple, Omnivision, and Research in Motion. Shimoon provided this inside information to PGR and PGR clients so it could be used to trade securities. From September 2008 to June 2010, Shimoon received approximately $13,600 for talking to PGR and its clients.
 
Jiau was a "private" PGR expert, meaning that PGR made her available only to a small number of PGR clients. Jiau, who had contacts at Marvell and other technology companies, regularly provided certain PGR clients with inside information regarding Marvell and other technology companies. Jiau provided company-specific financial results that companies had not yet announced publicly. From September 2006 to December 2008, Jiau received more than $200,000 for her consultations with select PGR clients.
 
Nguyen and Fleishman received, directly or indirectly, specific inside information from PGR consultants and passed this inside information on, directly or indirectly, to PGR clients.
 
The SEC's complaint charged each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, additionally, charges Fleishman, Nguyen and Jiau with aiding and abetting others' violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5. The complaint also charged Longoria and DeVore with violations of Section 17(a) of the Securities Act of 1933.