UPDATE 2-Beer, betrayal, a lost iPhone in Apple device tale

* Warrant reveals worried Apple execs, cache of Apple gear

* Outside attorney calls possible impact “huge”

* Search warrant relates to missing iPhone prototype
(Adds details from warrant throughout)

By Alexandria Sage

SAN FRANCISCO, May 14 (BestGrowthStock) – Fearing “huge” losses in
sales after pictures leaked of its fourth-generation iPhone,
Apple Inc (Read more about Apple stock future.) (AAPL.O: ) convinced police to launch a felony
investigation and Chief Executive Officer Steve Jobs contacted
the offending Web site himself to try and recover the gadget.

A California court unsealed a search warrant on Friday in
the case of the lost or stolen prototype 4G iPhone whose inner
workings ended up on popular gadget site Gizmodo — weaving a
bizarre tale of beer gardens, paranoid lawyers and emails to
the Apple chieftain.

Apple, which has released a new iPhone in each of the past
three summers, is known for its secrecy. It is widely believed
to be releasing its latest model this summer.

The story of the missing iPhone that belonged to an Apple
engineer has captivated Silicon Valley since news broke last
month. The missing phone apparently caused concern among Apple
executives, according to a meticulously detailed April 23
search warrant by Matthew Broad, a detective with the San Mateo
County Sheriff’s office.

An outside lawyer for the company considered the missing
prototype “invaluable” and publication of its details
“immensely damaging” to Apple’s future sales, Broad wrote. The
detective is a member of the county’s squad that investigates
high-tech crimes.

The loss of the prototype, owned by Apple employee Robert
Gray Powell, in late March prompted a meeting between company
executives and law enforcement.

“Riley stated the publication of the device and its
features is immensely damaging to Apple,” wrote Broad in the
warrant, referring to Apple’s outside counsel, George Riley of
O’Melveny and Myers.

Apple’s director of information security, Rick Orloff, and
the company’s general counsel, Bruce Sewell, were also at the
April 20 meeting.

Riley said Apple customers would delay purchases until the
new iPhone was released, “thereby hurting overall sales and
negatively effecting Apple’s earnings,” the detective wrote.

“Riley stated he could not currently provide an estimated
loss, but he believed it was ‘huge,'” Broad wrote.

Apple officials were not available for comment.

BEER AND BETRAYAL

The incident began when Apple engineer Powell lost the
prototype iPhone while at a German restaurant and beer garden
in Redwood City, in the San Francisco Bay Area.

It was then either found or stolen by Brian Hogan,
according to the search warrant.

But Hogan’s room-mate, worried that the iPhone could be
traced back to her after he plugged it into her computer,
tipped off Apple that he had sold it to Gizmodo for $8,500.

Photos and details of the new device — ripped apart to
reveal its inner workings — subsequently appeared on the
website.

The device featured several improvements on the current
generation model, including video, according to Gizmodo.

Jobs then contacted Gizmodo’s editor Brian Lam who replied
in an email that the device would be returned if Apple
acknowledged that it was indeed the iPhone prototype, according
to Broad’s report.

Lam then gave Apple the address of Gizmodo employee Jason
Chen, to arrange for the iPhone’s pickup.

Police later seized some 22 items, including an iPhone
iPad, 3 Macbooks, an Apple base station and other devices, from
Chen’s residence. [ID:nN26153928]

San Mateo District Attorney Chris Feasel told Reuters no
charges had been filed but the investigation was ongoing.

“We are working with Chen’s attorney to expedite the search
of the computers,” he said.

A San Mateo County Superior Court judge had sealed the
search warrant on April 28, but ordered it unsealed on Friday
after petitioning by a coalition of media outlets.

Stock Market Today

(Editing by Edwin Chan, Richard Chang and Leslie Gevirtz)

UPDATE 2-Beer, betrayal, a lost iPhone in Apple device tale