The man in charge of IBM’s $20 billion a year hardware business has been arrested over an insider trading scheme that illegally netted $25 million
IBM veteran Robert Moffat, the senior vice president in charge of IBM’s hardware business, has been charged by the SEC for involvement in an insider trading scheme that illegally netted $25 million.
Moffat is one of seven people named by the SEC as part of the scheme, which also included Intel Treasury executive Rajiv Goel. They are accused of giving insider information on such companies as Google, AMD and Sun Microsystems to two managers at New York-based hedge fund company.
Moffat was named in a complaint filed by the Securities and Exchange Commission in US District Court in New York City.
Goel, an executive with Intel Capital, and Raj Rajaratnam, a managing member of the hedge fund Galleon Management have also been charged for allegedly using the information in their trades.
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.
Rumours 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’s quarterly earnings and an upcoming joint venture with Clearwire, a wireless company that Intel had invested in.
Kumar allegedly gave Rajaratnam inside information about deals involving AMD and two Abu Dhabi-based companies. AMD in a joint venture with Advanced Technology Investment Company, of Abu Dhabi, spun off its manufacturing business to create Globalfoundries back in March.
“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.