Greed on Wall Street has landed six people - including a long-time, high-level IBM executive - in handcuffs after the FBI charged them with being involved with "the largest hedge fund insider trading case in history."
In all, the six netted illegal profits of more than $20 million by using insider information about a number of companies, including IBM, AMD, Sun Microsystems, Akamai, Clearwire and Google. The information sharing that led to illegal trading goes back as far as January 2006 and the case itself represents the first time that court-authorized wiretaps have been used to target significant insider trading on Wall Street. Those arrested were:
- Raj Rajaratnam, managing member of Galleon Management, LLC and a portfolio manager for Galleon Technology Offshore, Ltd.
- Danielle Chiesi, an employee of New Castle Funds, LLC and formerly the equity hedge fund group of Bear Stearns Asset Management, Inc.
- Mark Kurland, a top executive at New Castle
- Rajiv Goel, a Director in Strategic Investments at Intel Capital, the investment arm of Intel Corp.
- Anil Kumar, a Director at McKinsey & Company, Inc., a global management consulting firm
- Robert Moffat, Senior Vice President and Group Executive at IBM
Moffat, who surrendered to FBI officials this morning in White Plains, NY, has been with IBM for more than 31 years and has held a number of executive positions.
Moffat, who has been in his most recent position since July 2008, is responsible for "all IBM hardware offerings as well as the microelectronics division," according to his bio on the company's Web site. (PDF) The company's integrated supply chain operations, which include global manufacturing, procurement and customer fulfillment, also report to him. In his position, Moffat reported directly to company chairman, president and CEO Sam Palmisano.
Moffat is also listed as a member of the IBM Performance Team and the IBM Corporate Operations Team, a member of the Board of Trustees for The Manufacturing Institute, an educational and research affiliate of the National Association of Manufacturers, and a non-voting observer on the Board of Directors of Lenovo Group Limited.
The complaints are complex and contain multiple instances of information sharing for the purpose of insider trading. Excerpts of the FBI's press release, as it relates to Moffat, read:
KURLAND, MOFFAT, and CHIESI engaged in overlapping schemes to commit insider trading. Specifically, CHIESI obtained inside information from MOFFAT, RAJARATNAM, and an executive at Akamai on several publicly traded companies, including IBM, Sun Microsystems, AMD, and Akamai. CHIESI in turn shared that information with KURLAND, and both CHIESI and KURLAND then traded on that information in the accounts of their hedge fund, New Castle...
During other calls intercepted by the FBI, CHIESI obtained non-public information concerning AMD from MOFFAT and RAJARATNAM, and shared that information with KURLAND. For example, in August 2008, CHIESI and MOFFAT were discussing a confidential business transaction that AMD was then negotiating with investors from Abu Dhabi. MOFFAT had access to inside information concerning this deal because as part of the transaction, IBM would be granting a license to an entity to be spun off by AMD. Toward the end of the call, CHIESI asked about the timing of the deal involving AMD, and MOFFAT replied, "six to eight weeks from my meeting." When asked the chances that the deal would fall through, MOFFAT replied, "Zero..., I see no way that it doesn’t get done." MOFFAT also said that IBM had "already signed" the agreement.
The FBI and U.S. Attorney's Office say that the investigation is continuing and issued a warning to those engaging in corrupt and illegal activities on Wall Street. In a statement, Preet Bharara, the United States Attorney for the Southern District of New York, said:
Today, we take decisive action against fraud on Wall Street. This case should be a wake up call for Wall Street. It should be a wake up call for every hedge fund manager and every Wall Street trader and every corporate executive who is even thinking about engaging in insider trading. As the defendants in this case have now learned the hard way, they may have been privy to a lot of confidential corporate information, but there was one secret they did not know: we were listening. Today, tomorrow, next week, the week after, privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?
Moffat, along with several other defendants, were expected to appear in Manhattan Federal Court in New York today. Goel is expected to appear in federal court in San Jose today.