Senior IBM exec among those charged in Wall Street insider trading sting

Senior IBM exec among those charged in Wall Street insider trading sting

Summary: 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.

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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.

IBM SVP Robert Moffat

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.

Topics: Processors, Banking, Government, Government US, IBM

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17 comments
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  • we should thank the PATRIOT act

    for nabbing corporate crooks not only terrorists.
    I'm wondering how many insider trading schemes are still uncovered fueling the wealth of the 'chosen few' at the expense of the regular 401K contributors that work for a living.
    Linux Geek
  • RE: Senior IBM exec among those charged in Wall Street insider trading sting

    You'd think at his age, he would have learned by now. But the casualness of what was quoted here from the call leads me to believe that this is not the first time Moffat has done this. I'm wondering how many of these fine men have successfully taken advantage of insider trading in the past to pad their nest eggs before being caught here.
    Taz_z
    • And the funny thing is...

      they would now be better off had they chosen to live honest lives.
      The Mentalist
    • What was Moffat's Motivation ?

      Incredibly, according to the FBI complaint, Moffat did not take any payment for the info he so cavalierly spouted. Why, then did he do such a stupid thing?

      The FBI agent who wrote the complaint stated that Moffat and Danielle Chiesi were friends. Anyone who reads either or both complaints filed in the Southern District of New York last Thursday (October 15) will get a taste of the crude language Chiesi uses throughout.

      Why, then, would a veteran IBMer, known for his straight-arrow persona, have anything to do with such a vulgar blabbermouth? One has to wonder about the psychological makeup of the guy.

      You can bet some IBM employees don't give a hoot about what his reasons may be. When he came to power as a Senior VP, Moffat decimated the rank and file with blanket firings and layoffs, winning no friends among the lower-downs. Apparently, there are certain IBM union workers in Poughkeepsie who are cheering in the hallways at his demise.
      LibThinker
  • Insider Trading is a joke

    I never got why it's illegal to use connections you have on Wall Street. Stocks should NOT be left 100% up to chance and random betting, but all of a sudden it's a crime to have an inside source that tells me a company is going down so I can sell my stock, simply because all of the other scumbags who DON'T have that source won't know until it's too late?

    I thought this was business, not kindergarten. We don't all have to share and be nice to each other.
    wayne62682
    • I guess we'll see you in cuffs next then.

      Like it or not, its the law. If you think you can do it and get away with it - go ahead. The FBI just showed you that you WILL get caught. Have fun! All the drug dealers in the country said the same thing.
      andrej770
    • So why should all the employees

      who know the stock will tank on bad news that the company will be announcing the next day, be able to profit handsomelly by selling off today, while you're left with worthless paper 24 hours later because you're just an investor, not an employee?

      You would think it a little differently at that point.
      John Zern
      • No confidence

        As a company insider, I would [i]never[/i] buy my company's stock and would sell stock options the day they vested, so long as they were worth [i]something[/i], anything at all. Company stocks and sausages are similar in the sense that they may taste good, but you don't want to see how they're made. As an employee one often has much lower esteem for company management than do outside analysts and investors.
        Tony R.
  • RE: Senior IBM exec among those charged in Wall Street insider trading sting

    This is a true example of greed. Robert Moffat was paid enough by IBM (salary + bonuses, etc.) that most of us could live confortably for our entire lives on what he makes in a couple of years. Yet he felt the need to have even more. It is a shame for IBM that such a high ranking person could be involved with this illegal act. It is neither a part of "business" as wayne62682 suggested nor a part of "kindergarten" that we don't break the law.
    wildhorserider
    • A law that is stupid...

      Is worse than no law at all. Just because something is "the law" doesn't make it right. Just because someone decided that things should be fair all around doesn't make it a good decision, even if the sheep back it up because "it's the law"
      wayne62682
      • Prisoner wayne number 62682

        Go ahead try it, this is what you'll end up being.
        johnpall9
        • My guess is he doesn't invest

          so he dosen't understand.
          John Zern
      • I can take it you're not an investor anywhere

        It sounds like you would be mighty happy with 20,000 shares of $2.00 stock that you bought at $20.00 a share, while the company's employees cashed out a day earlier at $25.00 a share because they knew it was gonna tank.
        John Zern
  • This case is a joke

    and it's on us.

    Yes they're crooks, but the amount of money involved is noise level.

    What I'd really like to see is the CEOs of Goldman Sachs, BoA, AIG et al. twisting in the breeze.

    : o )
    Jack-Booted EULA
    • Right on

      ... and how about sociopaths like Soros who crashed the currencies of Indonesia and Malaysia in 1997, to the tune of [i]billions[/i] of dollars, causing widespread misery? Moffatt et al are pikers in comparison.
      Tony R.
  • RE: Senior IBM exec among those charged in Wall Street insider trading sting

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  • What was Moffat's Motivation ?

    Incredibly, according to the FBI complaint, Moffat did not take any payment for the info he so cavalierly spouted. Why, then did he do such a stupid thing?

    The FBI agent, Diane M. Wehner, who wrote the complaint stated that Moffat and Danielle Chiesi were friends. Anyone who reads either or both complaints filed in the Southern District of New York last Thursday (October 15) will get a taste of the crude language Chiesi uses throughout.

    Why, then, would a veteran IBMer, known for his straight-arrow persona, have anything to do with such a vulgar blabbermouth? One has to wonder about the psychological makeup of the guy.

    You can bet some IBM employees don't give a hoot about what his reasons may be. When he came to power as a Senior VP, Moffat decimated the rank and file with blanket firings and layoffs, winning no friends among the lower-downs. Apparently, there are certain IBM union workers in Poughkeepsie who are cheering in the hallways at his demise.
    LibThinker