Robert Moffat, head of IBM's hardware business, is accused of giving inside information to a New York hedge fund manager and friend about IBM's own finances as well as about AMD and Sun Microsystems. Wiretaps were a key tool in bringing the case together, according to court records. Moffat, a 31-year IBM veteran, was placed on leave following his arrest Oct. 16.
Robert Moffat, head of IBM's hardware
business, reportedly has been placed on leave amid allegations that he gave
insider information to a hedge fund manager over the past couple of years.
Moffat was one of six people charged Oct. 16 with an
insider trading scheme
that federal investigators said netted more than $25
million in illegal profits. The case is the largest ever involving a hedge
fund, according to investigators.
The Wall Street Journal reported Oct. 19 that Moffat, a 31-year IBM
veteran and senior vice president and group executive of the company's $20
billion Systems and Technology Group, was placed on leave following his arrest
Oct. 16. A spokesperson for IBM
company would have no comment on the case.
The case, investigated by such federal agencies as the Securities and
Exchange Commission and the FBI, involves inside information allegedly supplied
by Moffat and others to executives of two New York-based hedge funds over the
past several years.
Others charged in the case are Rajiv Goel, an executive with Intel's
treasury group; Anil Kumar, a director at McKinsey & Co.; Raj Rajaratnam,
founder and managing partner of hedge fund Galleon Management; Danielle Chiesi,
a portfolio manager at hedge fund New Castle Funds; and Mark Kurland, a senior
managing director and general partner at New Castle.
In addition, New Castle Funds and Galleon Management were named in the
According to court documents, Moffat allegedly gave Chiesi-whom
investigators said was a friend of Moffat-information not only about IBM's
finances, but also about the company's interest in Sun Microsystems and in Advanced
Micro Devices' plans to spin off its chip manufacturing business in a joint
venture with ATIC (Advanced Technology Investment).
News reports also say investigators are widening the probe of insider
trading on Wall Street, some of which is related to this case.
In court documents, investigators say Moffat was recorded having multiple
telephone conversations with Chiesi in 2008 and 2009, allegedly giving her
insider trading tips regarding IBM, Sun and AMD
that Chiesi then passed on to Rajaratnam and Kurland. All three used the
information to make trading decisions on those companies.
Investigators had put wiretaps on two of Chiesi's land lines as well as on
her cell phone. Wiretaps also were placed on telephones used by Rajaratnam.
Throughout the summer and fall of 2008, Moffat allegedly gave Chiesi
information related to AMD's reorganization
plans and its deal with ATIC. IBM was privy
to the information because of its business relationship with AMD
in the chip space.
Between June and October 2008, Moffat allegedly met with Chiesi or spoke
with her on the phone talking about the AMD-ATIC
deal, how the new company would be organized and when the deal would be
announced. At one point he's quoted as suggesting to Chiesi that he could give
her a organizational chart for the
Chiesi also said in taped telephone conversations with Rajaratnam and Kurland
that during that same time she was speaking with an unnamed AMD
executive about the deal. Chiesi allegedly passed on the information from
Moffat to both men, who made trades based on the data.
At several points, Chiesi reportedly sounded worried about the possibility
that the insider trading deal would be discovered, at one point saying she was
getting a new cell phone in case her other one was tapped.
On Aug. 19, 2008,
she and Rajaratnam reportedly talked about the need to be careful and to keep
the information from Moffat and the AMD
"If it leaks, I think I'm out of business," Chiesi is quoted as
saying. "Because ... who knows IBM? And
who's in bed with AMD?"
At another point, in talking with an unnamed co-conspirator, Chiesi
reportedly said, "I'm dead if this leaks. I really am ... and my career is
over. I'll be like Martha [bleeping] Stewart."
AMD announced the deal Oct. 7, 2008, to spin off
the manufacturing business into a company that later would be named
The court documents also indicate that IBM
executives began discussing the idea of buying Sun
in December of 2008, months before their interest broke in the
press in March. Moffat was one of nine IBM
executives assigned to work with their Sun counterparts as part of the due
diligence work before a sale.
Investigators allege that Moffat in January gave Chiesi information
regarding Sun's second-quarter 2009 financial earnings, specifically saying
that Sun was going to be beat analyst projections.
IBM never bought Sun; Oracle announced in
April that it was buying
Sun for $7.4 billion.
That deal is still awaiting approval by European
Moffat also allegedly gave information to Chiesi regarding IBM's
finances between September 2008 and April 2009.
Investigators say Chiesi and New Castle
made trades based on the information Moffat gave her about Sun and IBM.
The tapping of the suspects' phones played a key role in the investigation.
Throughout the court documents, there also was a reference to a "Tipper
A," who investigators said gave Rajaratnam inside information regarding
such companies as Polycom and Akamai Technologies.
In addition, Goel, the Intel executive, allegedly gave Rajaratnam
information regarding Intel's quarterly financial numbers in 2007 as well as
tips regarding a joint venture between Clearwire-which Intel had invested
in-and Sprint Nextel.
Intel put Goel on administrative leave after his arrest. Intel spokesperson
Chuck Mulloy said company executives had no idea about the federal case until
the arrests were announced Oct. 16. Mulloy also said Intel was conducting its
own internal investigation.