October 20, 2009
IBM Server Chief On Leave Following Arrest
by Information Week
IBM (NYSE: IBM) placed senior VP Robert W. Moffat on leave following his arrest last week on a securities fraud charge stemming from his alleged involvement in what authorities called the largest hedge fund insider trading scheme in history.
Moffat oversaw IBM's $19 billion Systems and Technology group, which develops and sells servers and other business computing hardware. His duties will be assumed on an interim basis by IBM veteran Rodney Adkins, a spokesman said Monday.
Moffat also has been removed from his post as an IBM corporate officer, said the spokesman, who declined to comment further on the case.
Moffat and several alleged accomplices from the tech and investment industries were arrested Oct. 16 on a range of insider trading charges. Also charged were Raj Rajaratnam, of Galleon Management, Danielle Chiesi and Mark Kurland, of New Castle Funds, Anil Kumar, of consulting firm McKinsey, and Intel (NSDQ: INTC) Strategic Investments director Rajiv Goel.
Authorities fingered Galleon's Rajaratnam as the alleged mastermind of the scheme, which involved numerous individuals. "All are charged with insider trading schemes that netted more than $20 million in illegal profits," said a statement released last week by the office of the U.S. Attorney for the Southern District of New York.
"The charges contained in the complaints are merely accusations, and the defendants are presumed innocent until proven guilty," the U.S. Attorney's office added.
U.S. Attorneys worked on the case for months with investigators from the Federal Bureau of Investigation. The defendants are alleged to have illegally shared insider information through telephones that had been secretly tapped by the authorities.
Among other things, prosecutors allege that in August of last year Moffat was caught on tape informing Chiesi of AMD (NYSE: AMD)'s plans to spin off its chip manufacturing arm into a separate company, to be called Foundry, that would be partly financed by investors from Abu Dhabi.
"When asked the chances that the deal would fail, Moffat replied, 'Zero,'" prosecutors allege. The prosecutors contend that Moffat was privy to AMD's plans because the deal required Foundry to license certain technologies from IBM.
Prosecutors also contend that Chiesi obtained insider information from Moffat concerning Sun Microsystems (NSDQ: JAVA). IBM was reportedly in talks to acquire Sun earlier this year, but the company was ultimately snapped up by Oracle in April for $7.4 billion.
Prosecutors allege that Moffat, Kurland, and Chiesi "engaged in overlapping schemes to commit insider trading."
Moffat was charged with one count of Conspiracy to Commit Securities Fraud. He faces up to five years in prison if convicted. He also faces fines of up to $250,000, or twice the gross gain or loss from any transactions related to the alleged scheme.
By WILLIAM M. BULKELEY
Within International Business Machines Corp., Robert W. Moffat Jr. was known as a "quintessential IBMer," rising to Big Blue's top echelons by relentlessly cutting costs to boost profits. To the rest of the world, he is becoming known as one of the highest-ranking executives to be embroiled in an insider-trading scandal since Wall Street was rocked by such schemes in the 1980s.
The 53-year-old IBM veteran, a senior vice president and a close confidant of IBM Chief Executive Samuel Palmisano, was arrested last week and accused of leaking sensitive data as part of an insider-trading ring that prosecutors say is the biggest in a generation.
An affidavit in the federal case, based on wiretaps, alleges that Mr. Moffat gave inside information about IBM and its partners to Danielle Chiesi, who worked for New Castle Partners, a former Bear Stearns Cos. hedge fund that was spun out last year. He allegedly told her confidential details about coming earnings for IBM and Sun Microsystems Inc., as well as plans for Advanced Micro Devices Inc. to sell its semiconductor factory to an Abu Dhabi fund.
According to affidavits, New Castle made more than $1 million trading on some of the information. Ms. Chiesi allegedly shared tips with Raj Rajaratnam, the billionaire partner at hedge fund Galleon Group, who prosecutors say was at the center of the ring. Ms. Chiesi and Mr. Rajaratnam were also charged Friday, along with three others.
At IBM, based in Armonk, N.Y., and in nearby Ridgefield, Conn., the suburb that is home to Mr. Moffat and dozens of other IBM managers, the news shocked current and former associates.
Rosabeth Moss Kanter, a Harvard Business School professor who examined IBM in her recent book "Supercorp," said, "It is astounding given IBM's emphasis on a values-based culture."
Kerry Lawrence, a white-collar criminal attorney in White Plains, N.Y., who is representing Mr. Moffat, said his client "was shocked by the charges and hopes for a favorable outcome." Mr. Lawrence also said "the government didn't allege he profited" from the alleged scheme.
Mr. Moffat couldn't be reached for comment, and IBM spokesman Edward Barbini declined to comment on Mr. Moffat's future at IBM, where he is in charge of computers and semiconductors. Mr. Barbini said Mr. Palmisano wasn't available to comment. AMD and Sun declined to comment.
Mr. Moffat was charged with conspiracy to commit securities fraud. The affidavit filed by FBI agent Diane Wehner doesn't accuse him of making money from his tips. Ms. Wehner also didn't suggest Mr. Moffat's motive, although she said she believes Mr. Moffat and Ms. Chiesi "are friends."
The affidavit purports to recount a conversation in which Ms. Chiesi, 43, refers to getting information from Mr. Moffat when she sees him "on f...ing Sunday at my Mom's house." As stated in the complaint, they allegedly had dinner together in September 2008, when he assured her IBM would meet earnings expectations.
Ms. Chiesi's attorney, Alan Kaufman, said in an interview Saturday that his client had been doing her job and did nothing illegal.
Mr. Moffat, "was the classic IBM executive from the cookie-cutter school of management training," according to one former associate. Mr. Moffat continued to carry on the company's tradition of wearing a white shirt to work, even though a ban on colored ones was lifted two decades ago. He was sometimes mentioned as a possible successor to the CEO.
A track star as an undergraduate at Union College in Schenectady, N.Y., Mr. Moffat joined IBM in 1978 in the finance department. In 2000, he became head of the troubled PC division. Within 18 months, Mr. Moffat arranged to outsource the company's desktop-manufacturing business in North Carolina and Scotland. Three years later, he managed the sale of the rest of the PC business to China's Lenovo Inc.
According to the FBI's affidavit, Mr. Moffat called Ms. Chiesi's phones shortly after wiretaps on her began in August 2008. One conversation was about AMD's turnaround plans. The affidavit alleges that after that call, Ms. Chiesi said that without such information, "I wouldn't touch it [AMD stock] with a f...ing 10-foot pole."
On Jan. 20, Ms. Chiesi allegedly told an unnamed "cooperating witness" that she was buying IBM stock based on information from Mr. Moffat that its results would be better than expected. New Castle made $500,000 on trades related to that information, the affidavit said.
New Castle also bought hundreds of thousands of shares of struggling Sun, which IBM was secretly negotiating to buy, after Mr. Moffat allegedly started telling Ms. Chiesi about its condition.
According to the affidavit, on Jan. 26, Ms. Chiesi told an alleged conspirator that Mr. Moffat told her Sun's revenue and earnings would be better than expected. The next day, New Castle bought 784,000 shares, most of which it sold over the next two weeks after Sun reported and its stock jumped 8%. New Castle made $900,000 on the transactions, the affidavit said.
Written by The Ridgefield Press
Tuesday, 20 October 2009 11:06
IBM Corp. placed Ridgefield (where he lived) executive Robert W. Moffat Jr. on leave Monday, following charges that he allegedly leaked secrets about IBMâs earnings and financial dealings.
Mr. Moffat, 53, a senior vice president and group executive at IBMâs Systems and Technology Group, is no longer serving as an officer of the company, the Associated Press (AP) reports.
Mr. Moffat was among six hedge fund managers and corporate executives arrested last Friday in a hedge fund insider trading case that authorities say generated more than $25 million in illegal profits.
Mr. Moffat has worked for IBM since 1978 and has been trumpeted as a âoperational expert,â the AP said.
Kerry Lawrence, an attorney representing Mr. Moffat, told the AP that Mr. Moffat hasnât been accused by the government of profiting from the alleged scheme.
âNot only have they not alleged that, but that definitely did not happen,â Mr. Lawrence said to the AP.
Mr. Lawrence said last week that his client will plead not guilty.
âMr. Moffat is accused of supplying Danielle Chiesi, who worked for a hedge fund known as New Castle, details about IBMâs earnings; the timing of a restructuring at IBM partner Advanced Micro Devices Inc.; and the financials of Sun Microsystems Inc.,â AP reports.
Itâs unclear from the court filings how Mr. Moffat would have benefited, the AP said.
One of those arrested was described as one of Americaâs wealthiest men. According to Associated Press, Raj Rajaratnam, a portfolio manager for Galleon Group, the hedge fund with up to $7 billion in assets under management, was charged with conspiring with others to use insider information to trade securities in several publicly traded companies, including Google Inc.
Forbes Magazine this year ranked Mr. Rajaratnam, who is 52, among the worldâs wealthiest billionaires, with a $1.3 billion net worth.
The criminal complaint filed in U.S. District Court in Manhattan charged that Mr. Rajaratnam obtained insider information and then caused the Galleon Technology Funds to execute trades that earned a profit of more than $12.7 million between January 2006 and July 2007.
U.S. Attorney Preet Bharara told a news conference in New York City it was the largest hedge fund case ever prosecuted.
October 20, 2009
Binghamton High grad charged in scheme
Ex-beauty queen worked for Bear Stearns
By George Basler and Nancy Dooling
At Binghamton High School, Danielle Chiesi was known as a smart, popular young woman who competed in beauty pageants.
Now, she's being billed as a potty-mouthed hedge fund trader who the FBI said was part of a $25-million insider trading scheme.
Chiesi, 43, was among six hedge fund managers and corporate executives - one of them a billionaire - arrested Friday in New York City. She is charged with sharing insider tips with billionaire hedge fund trader Raj Rajaratnam, the alleged mastermind of the scheme
It's the largest hedge fund case ever prosecuted, federal officials said. All six defendants face federal charges of conspiracy and securities fraud.
Court documents show Chiesi, a New York City resident, worked for New Castle, the equity hedge fund group of Bear Stearns Asset Management Inc. The fund has assets worth about $1 billion.
In the 2008 alumni directory for the Binghamton City School District, Chiesi, who graduated in 1983, listed her job as senior portfolio manager of New Castle Funds of Bear Stearns.
Former students post their own information in the directory.
Binghamton attorney Eugene Faughnan, who also graduated in 1983, didn't know Chiesi well, but he remembered her.
"She was obviously smart and very attractive," he said.
Bob Baxter Jr., who was an assistant principal at the time, also recalled her as a top-notch student.
Chiesi was crowned Miss Southern Tier Teenager of 1981, a photograph from the Press & Sun-Bulletin archives shows. She was the topic of Facebook chatter of Binghamton High School graduates of the era over this past weekendChiesi, whose bail was set Friday at $2 million by a federal judge, is featured in the numerous wiretaps used by federal authorities to secretly record conversations she and others charged in the case had with each other about pending deals and tips, court records show.
Federal officials said Chiesi and the five others benefited from tips about earnings and acquisition plans from IBM Corp. and other companies.
In recorded conversations, Chiesi apparently wasn't reluctant to drop profanities.
Talking about a pending deal, Chiesi said: "I'm dead if this leaks. I really am. ... and my career is over. I'll be like Martha (expletive) Stewart."
A separate criminal complaint in the case said Chiesi and her friend, Robert Moffat, senior vice president and group executive at IBM Corp.'s Systems and Technology Group, conspired to engage in insider trading in the securities of IBM.
Court records indicate Chiesi and Rajaratnam were heard on a government wiretap of a Sept. 26, 2008, phone conversation discussing whether Moffat should move from IBM to a different technology company to aid the scheme.
"Put him in some company where we can trade well," Rajaratnam was quoted in the court papers as saying.
The complaint said Chiesi replied: "I know, I know. I'm thinking that too. Or just keep him at IBM, you know, because this guy is giving me more information. ... I'd like to keep him at IBM right now because that's a very powerful place for him. For us, too."
According to the court papers, Rajaratnam replied: "Only if he becomes CEO." And Chiesi was quoted as replying: "Well, not really. I mean, come on ... you know, we nailed it."
Rajaratnam, 52, a portfolio manager for Galleon Group, a hedge fund with up to $7 billion in assets, was ranked No. 559 by "Forbes" magazine this year among the world's wealthiest billionaires, with a $1.3 billion net worth.
Both Rajaratnam and Moffat are listed as defendants in the case.
Arrest is âthe talk,â but heâs âinnocent until proven guiltyâ
Word hit Friday a top IBMâexecutive âone closely linked both to Hudson Valley operations and to IBMâs restructurings that cost many people their jobs âwas arrested on a charge of insider trading.
âThis is sweet revenge,â was the thought that came to Irvin Miller, a LaGrange man who left IBM in the early 1990s when buyouts were the ticket. âAll these people who were downsized must be saying, âAha!â â
Under Robert Moffatâs strategy, jobs were cut to make IBM more efficient, profitable and global.
What was true when Miller and thousands of other residents worked for IBM is still on the books. Today, itâs called âbusiness conduct guidelines.â âEach year, we had to read a code and sign it, which acknowledged that we knew what the rules were,â Miller said.
Moffatâs arrest is the âtalk of the town,â said Lee Conrad, national organizer for the Alliance@IBM, a workersâ group. âHeâs always been a slash-and-burn kind of executive, and it appears thatâs the kind of people they wanted up the fast track.â
Conrad said he thinks IBM was grooming Moffat for a shot at succeeding Samuel Palmisano as chairman and CEO someday.
Jimmy Leas, a Vermont lawyer who used to work for IBMâand became an activist for workersâ causes, said Moffat is âinnocent until proven guilty.â But he sees an underlying problem with IBM.
âWhile engineers, technicians and production workers are working long hours to make the company successful, in 1990, those at the top of the company got infected with the sickening culture of enriching themselves,â he said.
Neil Palmer, Cambridge, Ontario, Canada
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