08.17.2010

http://www.pcmag.com/article2/0,2817,2367930,00.asp

An Apple employee accused of accepting $1 million in kickbacks from international suppliers pleaded not guilty to the charges Monday, as more details about his scheme emerged in court filings.

Paul Devine was indicted in California District Court last week, and charged with 32 counts of wire fraud, wire fraud conspiracy, money laundering, and money transactions in criminally deprived property. An associate who allegedly helped Devine with the scam, Andrew Ang, was also indicted.

Apple also filed a separate civil suit in the same court on Friday.

Devine, a resident of Sunnyvale, Calif., started working for Apple in 2005 as a global supply manager in Apple's iPod and accessories procurement operations department. He was "responsible for developing and managing relationships with various companies that supply Apple with parts and materials for Apple iPod and headset enclosures, and for selecting the suppliers that would be awarded business to supply Apple with these parts and materials," according to Apple's suit.

In his job, Devine had access to confidential information, like product volume forecasts, product component forecasts, product pricing, product specifications, and confidential component and design and pricing information from Apple's suppliers, Apple said.

A little over a year after he started working for Apple, the company alleges that he started entering into agreements with overseas suppliers whereby he would supply them with confidential Apple business information in exchange for money. This would give the suppliers an advantage when negotiating prices and contracts with Apple.

"Devine took steps to ensure that Apple would accept business offers from the targeted suppliers, the terms of which were, unbeknownst to Apple, based at least in part on Apple's confidential information that Devine had unlawfully disclosed," Apple said. Without that deception "Apple would have ultimately paid less for mechanical parts or for the assembly of Apple products."

The suppliers were identified by Apple as Jin Li Mould Manufacturing, Glocom/Lateral Solutions, and Fastening Technology – all of which are based in Singapore. Also named were South Korea-based Cresyn, Co., China-based Kaedar Electronics, and Taiwan-based Nishoku Technology.

Bloomberg reports that Pegatron, which purchased Kaedar in 2008, has since suspended an unnamed senior manager at Kaedar, though the company's finance director said the manager "believed that she had paid the money for commercial purposes and not for kickbacks."

Reuters, meanwhile, reports that JLJ Holdings, which owns Ji Li Mould Manufacturing, is investigating the matter. A Cresyn official said Devine "offered to give us business consulting to help advance into the U.S. market," but denied that it provided him with kickbacks.

Pegatron, Fastening Technology, Nishoku, and JLJ Holdings did not immediately respond to a request for comment. Glocom/Lateral Solutions and Cresyn could not be reached.

Devine's scheme was discovered after Apple started monitoring his computer activity in April 2010. The company did not provide details as to why it started investigating Devine except to say that it "suspected violations of Apple's policies."

That investigation uncovered an Entourage cache of e-mails from Devine's Gmail and Hotmail accounts on his Apple-issued work laptop.

"These e-mails contained discussions with third parties regarding Apple's confidential information in violation of Apple's policies," Apple said in its suit. "These e-mails also confirmed that Devine had demanded and received over a million dollars in illicit payments, kickbacks, bribes, and other things of value … from numerous suppliers, and had concealed his scheme from Apple over the course of several years."

In these e-mails, Devine blatantly told suppliers not to e-mail him at his Apple e-mail address, and told them to send payment in sums less than $10,000 so as not to attract attention from regulators.

Devine had as many as 14 bank accounts, some of which were opened under the name of "CPK Engineering" and others that were opened in his wife's name, Apple said.

Apple estimated that Devine's scheme started in October 2006 and lasted until the company was made aware of his actions this year. During that time, he made $614,000 in salary from Apple, $51,076 in bonuses, and received a re-location package.

For example, Devine allegedly brokered a deal with Cresyn in February 2007 for monthly payments of $6,000 in exchange for information. He also reportedly split the kickbacks he received from Fastening Technology with Ang, who was later hired by the company.

Among other things, Apple is accusing Devine of fraud, breach of contract, breach of fiduciary duty, misappropriation of trade secrets, restitution and unjust enrichment. They are seeking damages to be determined by court, as well as attorney costs and fees.

The government, meanwhile, indicted Devine on 32 counts, and indicted Ang on charges of wire fraud and wire fraud conspiracy. Devine is expected back in court on Aug. 18 for a detention hearing. He faces a maximum penalty of 20 years in prison, a $250,000 fine, and three years of supervised release.