Citing reports of lower iPhone production at Hon Hai, Citi’s newly appointed Apple analyst cut his price target and his rating — from Buy to Neutral.

“Near-term supply chain order cuts,” he wrote in a Dec. 17 note to clients, “while inconclusive in nature, bring into question the strength of iPhone 5 and refocus investors onto risks in the Apple story.”

What Yeung didn’t mention was that Citi had been tipped off nearly a week earlier about those production cuts and that one of his colleagues, a Citi analyst based in Taiwan named Kevin Cheng, had been slipping the information to selected hedge funds on the QT.

Cheng’s name figures prominently in a consent order released Thursday by Massachusetts Secretary of State William Galvin. Citi has agreed to pay $30 million to dispose of allegations that Cheng violated both State and Federal security laws last December by telling clients who traded in Apple what was in Hon Hai’s production report before it was published — in other words, while it was still supposed to be a secret.

The allegations surfaced as part of the wide-ranging insider trading probe of billionaire Steve Cohen and his hedge fund, SAC Capital.

For anybody interested in where information about Apple’s supply chain comes from and how it gets disseminated, the court order makes for a fascinating read.

Basically, Cheng got pressured into giving up what he knew by aggressive traders who had got wind of a rumor and wanted his take on it before the news reached the market.

“can u send me everything u have on the entire iphone 4/4s/5 supply chain” one client wrote in an e-mail.

To which a Citi employee attached a note saying:

“Not sure who’s world this is in, but can you please send directly to [unnamed SAC employee]. He needs it asap — works directly for [SAC Capital.]”

In retrospect, Cheng’s forecast of a 30% cut in fiscal Q2 2013 iPhone production — which seemed extreme at the time — wasn’t that far off.

For fiscal Q1 2013, Cheng predicted sales of 53 million iPhones. Apple sold 47.8 million.

For Q2, Cheng forecast 33 million iPhones. Apple sold 35 million.

LINK: Citi Consent Order. The good stuff is in Part VI: Statement of Facts.