* Silicon Valley famous as "gossip mill" - expert
* Information a precious commodity for tech investors
By Gabriel Madway and Dan Levine
SAN FRANCISCO, Dec 16 Insider trading charges
buffeting the technology industry have laid bare what people
who work in Silicon Valley already know: leaks happen, and even
the smallest morsel of information is a treasured commodity.
Because IT is a high-growth business driven by new and
surprising technologies that emerge every day, a single piece
of data can give disreputable investors the edge they need to
cash in, experts say.
Three technology executives and a salesman for an "expert
network" firm have been arrested and charged with leaking
confidential information, U.S. federal prosecutors said on
Thursday. The defendants are accused of illegally passing on
tips to at least two unidentified hedge funds. [ID:nN16228432]
Prosecutors detailed leaks related to some of the most
prominent names in technology, including chip maker Advanced
Micro Devices Inc AMD.N, personal computer maker Dell Inc
DELL.O and, most notably, Apple Inc (AAPL.O).
Expert networking firms may have gained popularity in the
Valley because of the area's "highly refined gossip mill," said
Robert Weisberg, a professor at Stanford Law School.
"Things are probably looser and more informal here than
they are in the East Coast financial world, so it's both ripe
for this expert niche, but also ripe for all these clever new
forms of misappropriation," Weisberg said.
Even a company like Apple, renowned for its obsession with
secrecy, was apparently not safe from well placed leakers.
The complaint details a recorded phone call in October 2009
in which defendant Walter Shimoon, who worked at contract
electronics manufacturer Flextronics International Ltd
(FLEX.O), leaked confidential information about Apple's
next-generation iPhone and the iPad, which at that time was
only a rumor.
The iPad was so secret, it was known only by its code name,
"It's a new category all together," Shimoon is quoted as
saying, before speculating -- correctly -- that the iPad would
not come equipped with a camera.
In the same conversation, Shimoon also correctly predicts
that the next-generation iPhone will have two cameras.
"It'll be a neat phone 'cause it's gonna have (a)
5-megapixel auto-focus camera and it will have a VGA
forward-facing video conferencing camera," Shimoon said,
according to the complaint.
Long-time technology analyst Rob Enderle of the Enderle
Group said technology is a key focus for many powerful
investors, and the industry is simply wading through the sorts
of insider trading scandals that once rocked pharmaceutical
"There's just a huge amount of investment dollars focused
on tech, and financial analysts chase each other for who has
the best information," Enderle said.
"If you find out the next piece of information about the
next Chevy truck, for example, I don't think it's going to move
the stock very much. In tech, a little bit of information can
make a big difference."
Charles King, who follows the tech sector as the principal
analyst at Pund-IT, said, "I don't think greed and hubris are
limited to tech."
"But any time that a market heats up or a company like
Apple builds up a dominant position, then investor attention
increases in lockstep. And as soon as you have the willing
engagement of investors to get out ahead of the crowd, you
create the possibility of corruption."
(Reporting by Gabriel Madway and Dan Levine. Editing by Robert