“At Apple you can get fired for saying K48”

A supplier is overheard tipping a hedge fund off to the project that became the iPad

On Oct. 1, 2009, according to a criminal complaint unsealed Thursday, a Flextronics director named Walter Shimoon had a telephone conversation with an an unnamed “cooperating witness” (CW-2) employed by a hedge fund.

During this conversation, secretly taped by the FBI and now entered into evidence, Shimoon allegedly gave CW-2 actual third quarter iPhone sales figures — numbers that wouldn’t be publicly released for another two and a half weeks and could, in theory, move the stock.

Then he dropped his two bombshells:

Apple, he is heard telling CW-2, was “coming out next year” with a new iPhone that’s “gonna have two cameras … It’ll be a neat phone because it’s gonna have a five-megapixel auto-focus camera and it will have a VGA forward-facing videoconferencing camera.” Apple announced the iPhone 4 — with its two cameras — eight months later.
Then he is heard telling CW-2 that “they [Apple] have a code name for something new … It’s … It’s totally … It’s a new category altogether… It doesn’t have a camera, what I figured out. So I speculated that it’s probably a reader. … Something like that. Um, let me tell you, it’s a very secretive program … It’s called K, K48. That’s the internal name. So, you can get, at Apple you can get fired for saying K48.” The iPad — code named K48 — was unveiled four months later.

Until he was fired last month, Shimoon, 39, was a senior director of business development at Flextronics (FLEX), which supplies Apple (AAPL) with camera and battery components. He and his three co-defendants were arrested Thursday on several changes of wire fraud and securities fraud. A fifth person — a former Dell (DELL) employee — pleaded guilty last week and is said to be cooperating with investigators.

According to a statement released by Manhattan U.S. Attorney Preet Bharara, the defendants were part of “a corrupt network of insiders” serving as consultants “who sold out their employers by stealing and then peddling their valuable inside information.”

You can read the indictment here. The Wall Street Journal‘s report on the case is available here.