Head of IBM Hardware Unit Charged in Insider Trading Scheme

 
 
By Jeffrey Burt  |  Posted 2009-10-16 Email Print this article Print
 
 
 
 
 
 
 

Robert Moffat, senior vice president in charge of IBM's hardware business, is one of seven people named by the SEC as part of an insider trading scheme that illegally netted $25 million. Moffat and Intel Treasury executive Rajiv Goel are among those accused of giving insider information on such companies as Google, AMD and Sun Microsystems to two managers at New York-based hedge funds, who allegedly used the information in their trades.

Robert Moffat, a 31-year IBM veteran who currently is in charge of the tech vendor's hardware business, is one of seven people charged in an insider trading scheme that federal investigators say generated $25 million in illegal gains.

Moffat was named in a complaint Oct. 16 filed by the Securities and Exchange Commission in U.S. District Court in New York City.

Moffat and Rajiv Goel, an executive with Intel Capital, were among those charged in an investigation into the workings of hedge fund company Galleon Management and Raj Rajaratnam, a managing member of the hedge fund.

According to the SEC, Moffat and Goel were among a "network of friends and close business associates" that fed Rajaratnam "insider tips and confidential information about corporate earnings or takeover activity at several companies," including Google, Sun Microsystems, Advanced Micro Devices, Akamai Technologies and Polycom.

Rajaratnam allegedly then used that information to conduct trades for Galleon, the investigators said.

Also charged were Danielle Chiesi, a portfolio manager at hedge fund New Castle Funds; Anil Kumar, a director at McKinsey & Co.; and Mark Kurland, a senior managing director and general partner at New Castle. New Castle Funds and Galleon Management also were named in the complaint.

A spokesperson for IBM said the company had no comment on the situation.

Moffat has been with IBM since 1978, climbing up through the executive ranks to become senior vice president and group executive of the company's Systems and Technology Group. He was named to the position in July 2008 to oversee IBM's $20 billion hardware business.

According to the SEC, Moffat gave inside information to Chiesi about Sun around the time when IBM officials were thinking about acquiring the rival hardware maker. Chiesi allegedly took the information and made trades for New Castle that netted the hedge fund about $1 million in profits.

Rumors of IBM's interest in Sun emerged earlier in 2009. Eventually software giant Oracle announced it was buying Sun for $7.4 billion, an acquisition that is still pending as European regulators conduct an investigation into the deal.

Goel, the Intel Capital executive, reportedly gave information to Rajaratnam about Intel quarterly earnings and an upcoming joint venture with Clearwire, a wireless company that Intel had invested in. As payback for the Intel information, Rajaratnam or someone working for him executed trades in Goel's personal brokerage account based on inside information obtained from others about Hilton and PeopleSupport that netted Goel almost $250,000, according to the SEC.

Kumar allegedly gave Rajaratnam inside information about deals involving AMD and two Abu Dhabi-based companies. AMD in March in a joint venture with Advanced Technology Investment Company, of Abu Dhabi, spun off its manufacturing business to create Globalfoundries.

"What we have uncovered in the trading activities of Raj Rajaratnam is that the secret of his success is not genius trading strategies," Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement. "He is not the astute study of company fundamentals or marketplace trends that he is widely thought to be. Raj Rajaratnam is not a master of the universe, but rather a master of the Rolodex. He cultivated a network of high-ranking corporate executives and insiders, and then tapped into this ring to obtain confidential details about quarterly earnings and takeover activity."

The SEC is looking for sanctions against all the defendants, and also is asking the court to prohibit Moffat, Goel and Kumar from holding officer or director positions within any registered public company.

Chuck Mulloy, an Intel spokesperson, said Goel has been put on administrative leave pending the company's own investigation into the matter. Goel was named in the complaint as a managing director at Intel Capital, a subsidiary of the giant chip maker, but Molloy said he worked with Intel Treasury, which manages Intel's money.

"Intel was not aware of this case and was not contacted by authorities," Mulloy said, adding that Intel executives found out about the complaint Oct. 16. "But if contacted by authorities, Intel will cooperate."

 
 
 
 
 
 
 
 
 
 
 

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