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Canadian central in Wall St. insider probe

Date: Wednesday, February 9, 2011
Author: Globe and Mail

If there is an American dream, Walter Shimoon was living it – right up until the moment he was arrested.

The Ottawa native and Carleton University graduate had built a successful career as a technology executive in California. He and his wife bought a four-bedroom home with a pool on a tranquil street where they were raising two young children and awaiting the arrival of a baby.

Yet according to allegations by U.S. authorities, Mr. Shimoon, 39, had a side business. His job at a manufacturer of electronic components gave him access to the flow of orders for some of the hottest consumer products on the planet, including Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry.

Mr. Shimoon is alleged to have passed confidential details about those products to a number of hedge funds, which then used the information to conduct highly profitable trades, the authorities claim.

No allegations have been proven against Mr. Shimoon, who was freed on bail in December and faces both criminal and civil charges. But he has emerged as a central and perplexing figure in an investigation that U.S. authorities have suggested could be one of the largest ever to target illegal insider trading. In the last three months, 12 people have been charged in the probe.

On Tuesday, the investigation expanded its reach, ensnaring four hedge fund employees on charges of insider trading. Two have pleaded guilty. None of them appear to be directly connected to Mr. Shimoon.

People who know Mr. Shimoon say they’re shocked by the charges against him, which were first revealed in December. One friend who professed surprise recalled Mr. Shimoon’s love of gadgets and his winning personality.

His father Albert Shimoon, who runs a forestry export business in Ottawa, says his son didn’t do anything wrong. The charges are “very aggressive nonsense,” he says, audibly upset.

Mr. Shimoon was a vice-president of business development at Flextronics International in San Diego. But like many of the people charged so far in the probe, he also worked as a freelance consultant for an “expert network” firm. For a fee, such firms connect investors with sources of corporate expertise, usually through phone calls. Over about two years from 2008 to 2010, Mr. Shimoon earned $14,000 (U.S.) from his work for an expert network firm called Primary Global Research, according to the civil complaint.

Expert network firms market themselves as a way to research an industry, but are not supposed to act as a conduit for corporate secrets. U.S. authorities allege that Mr. Shimoon and others knowingly crossed that line. They claim in their documents that one hedge fund made nearly $1-million after getting a tip from Mr. Shimoon about how Apple was planning to ramp up its iPhone production.

At one point in late 2009, during a conversation about a different insider-trading probe, Mr. Shimoon is alleged to have expressed relief that his calls weren’t being recorded. “That would really suck,” he said, according to the criminal complaint filed in New York.

Mr. Shimoon’s lawyer, Henry Mazurek, did not respond to requests for comment. At a court appearance in December, a different representative for Mr. Shimoon argued that whatever he had revealed consisted of mere “tidbits of technological data” of minimal value to investors.

Experts say that charging people like Mr. Shimoon is the first step in a process of gathering evidence against bigger targets like hedge funds.

The government would like to “pick off as many people as possible and turn them into co-operators,” says Jacob Frenkel, a former federal prosecutor and partner at law firm Shulman Rogers. “They’re interested in pursuing these individuals, but they’re also interested in climbing the ladder.”

A spokesperson for the U.S. Attorney’s Office in New York declined to comment on the future course of the investigation.

Mr. Shimoon’s predicament is an unlikely stop on a path geared toward professional achievement. Born in Ottawa to a family of Iraqi Christian immigrants, he graduated from Carleton in 1995 with an engineering degree.

One early employer was telecom giant Nortel Networks Corp., according to his father. The technology bug appears to run in the family: Mr. Shimoon’s younger brother Justin heads an online advertising startup in Ottawa (he declined to comment).

By 2001, Mr. Shimoon had joined Flextronics, U.S. authorities said. Likeable and easygoing, he was a natural in his role, which included drumming up business for the components inside smart phones, digital cameras, and printers.

Robert Wright, a supply-chain executive for a semiconductor equipment company, used to meet weekly with Mr. Shimoon. Mr. Wright said in an interview he would tease Mr. Shimoon about his weakness for gadgets, including a device that allowed him to adjust the concentrations of air and fuel in his car engine.

Just over seven years ago, Mr. Shimoon and his wife, Linda Awdishu, a graduate of the University of Toronto and now a professor of pharmacy, paid $670,000 for a new 3,000-square-foot house in San Diego. He pledged equity in the home as part of his bail package, to which one of his neighbours reportedly contributed $15,000 in cash. He also surrendered his Canadian and American passports. Shortly after his arrest, Flextronics fired Mr. Shimoon.

Last week, the Securities and Exchange Commission filed a civil suit against him adding further details to the government’s case. The SEC alleges that in late 2009 Mr. Shimoon had a 40-minute conversation with a person at an unnamed hedge fund where he revealed that Apple was going to double its smart phone production in 2010, a boon for the firm that supplied the phone’s miniature camera. The next day the hedge fund allegedly started snapping up the supplier’s shares. It began selling them a month later for an eventual profit of $783,000.

“They want to catch people who are making the real dollars in the hedge funds – you should go and [wiretap] them,” said Albert Shimoon, noting the toll on his son’s job and family. “This is a disaster.”