On Monday, a (presumably former) global supply manager at Apple named Paul Shin Devine pleaded not guilty in federal court to 23 charges of wire fraud, money laundering, and illegal kickbacks. The indictment details an operation where he disclosed information about upcoming Apple products to suppliers in Asia, which the suppliers used to gain a stronger negotiating position with Apple and win better contracts. Devine’s arrest was reported by the San Jose Mercury News late last week, and Reuters claims to have uncovered some of the suppliers in question, who are predictably claiming ignorance. (Extra Style Bonus for whoever worked the word “gist” into a federal court document.)
This is high Silicon Valley drama: a bonafide racketeering and fraud operation built on Apple’s most guarded treasure, its trade secrets. Until now, egotistical thrill seekers have been the presumed sources of Apple leaks. The lost iPhone 4 and the early iPad 3G demo for Steve Wozniak, by contrast, were mistakes. These allegations, if true, are an eye-opening betrayal.
The indictment claims Devine received approximately $2.5 million in kickbacks from these dealings, which he split with a co-conspirator. That was merely his share of the pot, though: the effect of his alleged actions on supplier contracts presumably cost Apple much more—perhaps tens of millions of dollars. A pending civil suit filed by Apple against Devine may or may not detail Apple’s estimated financial exposure.
My understanding is that this sort of behavior is not at all unusual when doing business in China. Even if so, it won’t impress anyone in Cupertino. Apple surely cares about being ripped off by its suppliers, and certainly by its employees, but make no mistake: Devine’s true crime was disclosing confidential information. Doing so for profit, while a juicy twist, is almost immaterial. It wouldn’t surprise me to hear the Apple brass was happy Devine committed wire fraud—it means they can send him to jail for leaking company secrets.
Even after reading the indictment, questions remain. Who uncovered this mess? Apple? The IRS, upon randomly auditing Devine’s tax returns? Or was it part of a larger law enforcement operation? If Apple did the work, it was probably through a simple investigation into the numerous leaks that have materialized in the last year or two. Only when digging deeper would they have found that money and federal crimes were involved.
Additionally, how (if at all) will this affect the frequency or quality of leaks in the coming months? Was Devine a major source of details that have ultimately ended up in articles from DigiTimes, Taoviet, and others? Will his arrest scare off other sources?
Regardless, incidents like this will only intensify Apple’s frustration with external dependencies. Whether it be Java, Flash, or hardware production, Apple hates entrusting its business to third parties. If it can find a way to build one million iPhones per week, and Macs per month, without ever talking to companies like Foxconn, it will. With $46 billion and counting in cash, and huge ventures into retail and data centers already tackled, one wonders how far off an Apple-run manufacturing operation can be.