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 said the 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 complaint.
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 new company.
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 executive confidential.
"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 Globalfoundries.
The court documents also indicate that IBM executives began discussing the idea of buying Sun Microsystems 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 regulators.
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.