IBM exec with Triangle ties arrested for insider trading
Posted October 17, 2009 4:42 p.m. EDT
Updated October 18, 2009 8:58 p.m. EDT
Research Triangle Park, N.C. — Robert Moffat, a longtime IBM veteran executive whom has been labeled as its next chief executive officer, is among the six people arrested as part of an alleged insider trading case that includes billionaire Raj Rajaratnam.
Moffat has numerous Triangle connections. Once a top executive in IBM’s personal computer division that was largely based in the Triangle, he is listed as a member of the advisory board at Lenovo in his biography at IBM’s Web site.
Some of the allegations about Moffat center on IBM’s discussions about a possible acquisition of Sun Microsystems. IBM (NYSE: IBM) later decided not to buy Sun, which is now being bought by Oracle.
“The SEC … alleges that Moffat provided inside information to [defendant Danielle} Chiesi about Sun Microsystems. Moffat obtained the information when IBM was contemplating acquiring Sun,” the SEC said in a statement. “Chiesi then allegedly traded on the basis of this information on behalf of New Castle, making approximately $1 million in profits.”
Moffat, who lives in Connecticut, will plead not guilty, the Associated Press reported his attorney as saying. Bond was set $2 million.
IBM, which employs some 10,000 people in RTP, has declined comment about the case.
Moffat’s biography and photograph are available on the IBM Web site. His title is senior vice president and group executive at IBM’s Systems and Technology Group, making him head of IBM’s hardware operations. Moffat took over the $20 billion group last year. He has worked at IBM for 31 years.
According to ChannelWeb, which follows IBM closely, Moffat, 53, is a confidant of IBM Chairman and Chief Executive Officer Sam Palmisano and has been considered a possible successor to Palmisano. ChannelWeb labeled Moffat as the “no-nonsense hardware boss” at IBM.
Lenovo, the world’s No. 4 PC manufacturer, bases its global headquarters in Morrisville. It acquired IBM’s PC business in 2005. IBM picked Moffat as one of two non-voting observers named to Lenovo’s board as part of the deal. Earlier in his career he was senior vice president and group executive of IBM's Personal and Printing Systems Group. In that role he directed worldwide sales, development, manufacturing and marketing of PCs as well as printing systems and retail store solutions.
In the Sun matter involving Moffat, the SEC’s formal complaint reads:
“Moffat tipped Chiesi to material nonpublic information about Sun Microsystems, Inc.'s ("SUN") Q2 2009 earnings. Chiesi traded on behalf of [hedge fund] New Castle on the basis of that information.
“Moffat also tipped Chiesi to material nonpublic information about IBM's fiscal quarters ending December 2008 and March 2009, and Chiesi traded on behalf of New Castle on the basis of that information.
“Finally, Moffat tipped Chiesi to material nonpublic information about AMD's pending transactions with two Abu Dhabi sovereign entities, and Chiesi traded on behalf of New Castle on the basis of that information.”
As part of the case, the SEC said it is seeking to “permanently prohibit” Moffat and two of the defendants “from acting as an officer or director of any registered public company.”
Moffat, Rajaratnam and four other people were arrested Friday. Moffat is alleged to have provided inside information in deals that were part of schemes that made more than $12.7 million between January 2006 and July 2007 alone. Other schemes made millions more in profits adding up to some $20 million, according to authorities involved in the case.
“What we have uncovered in the trading activities of Raj Rajaratnam is that the secret of his success is not genius trading strategies. 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,” said Robert Khuzami, director of the SEC’s Division of Enforcement, in a statement. “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.”
A person involved in the case who was not identified cooperated with federal authorities.
Investigators wiretapped conversations between the defendants, according to the Associated Press.
Also arrested were:
• Rajiv Goel, a director of strategic investments at Intel Capital, the investment arm of Intel Corp. eWeek quoted a company spokesman as saying that Goel had been placed on administrative leave and that Intel would cooperate in the case.
• Anil Kumar, a director at McKinsey & Co. Inc., a global management consulting firm
• Danielle Chiesi, who worked at New Castle, the equity hedge fund group of Bear Stearns Asset Management Inc. that had assets worth about $1 billion under management.
• Mark Kurland, also a top executive at New Castle.
According to the Times Herald Record newspaper in New York, authorities said Chiesi and Rajaratnam were heard talking about Moffat in a call on Sept. 26 of last year.
"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."
Chiesi responded: "Well, not really. I mean, come on. ... You know, we nailed it."