Robert Moffat, IBM's no-nonsense hardware boss, has been charged in what federal authorities are calling the largest alleged hedge fund insider trading case ever.
Moffat, senior vice president and group executive at IBM, and five other people are facing charges stemming from the investigation, which was spearheaded by the Federal Bureau of Investigation. The other defendants include Rajiv Goel, a director in strategic investments at Intel; Raj Rajaratnam, managing member of Galleon Management; Danielle Chiesi of New Castle Funds; Mark Kurland, an executive at New Castle Funds, and Anil Kumar, a director at McKinsey & Co.
The case, which marks the first time that court-authorized wiretaps have been used to target insider trading on Wall Street, allegedly netted $20 million in illegal profits, according to the Manhattan U.S. Attorney's office.
Moffat, a 31-year IBM veteran and confidant to IBM Chairman and CEO Sam Palmisano, was considered by some to be a likely successor to Palmisano. Palmisano tapped Moffat 15 months ago to turn around IBM's ailing $20 billion hardware business.
Moffat allegedly conspired to commit securities fraud. He surrendered to the FBI Friday morning in White Plains, N.Y.
The 53-year old Moffat, who resides in ritzy Ridgefield, Conn., and four other defendants are scheduled to appear in Manhattan federal court later today before U.S. Magistrate Judge Douglas F. Eaton.
"This is a big deal," said one IBM channel partner who asked that he not be named. He said it was too soon to say whether the charges would result in Moffat having to step down.
"Bob Moffat is a good guy, and IBM is pretty strict about things like this," said Pete Elliot, director of marketing at Key Information Systems, a Woodland Hills, Calif.-based solution provider and IBM partner. "I'd be surprised if he was involved in things like that."
Moffat appeared at Everything Channel's XChange Solution Provider 2009 conference in August to address lingering concerns about IBM's partner strategy.
IBM officials did not immediately return a call for comment.
Moffat allegedly provided inside information on IBM, Sun Microsystems and AMD to Chiesi, an employee at New Castle Funds, formerly the equity hedge group of Bear Stearns.
Chiesi allegedly shared that information with Kurland, a top executive at New Castle Funds. Both Chiesi and Kurland are accused of allegedly trading on that information.
Key to the FBI's case are allegations that Moffat made phone calls to Chiesi in August 2008 centering on a multibillion-dollar joint venture between AMD and a high-tech investment company created by the government of Abu Dhabi. As a result of the deal, AMD spun off its processor manufacturing operations. IBM was involved in the discussions because AMD licensed IBM's technology.
In one example, Moffat allegedly told Chiesi, in a call overheard by Kurland, that AMD was going to separate into two companies: a chip fab company and a design company. "The Arabs are gonna pay them $2.1 billion for a 50 percent stake in Fabco," Moffat said in a wiretapped phone call, according to the complaint.
Intel's Goel has been placed on administrative leave, said Chuck Mulloy, legal spokesman for the Santa Clara, Calif.-based chip giant. Goel is an employee of Intel Treasury, Mulloy said Friday, and not Intel Capital as had been previously reported by some media outlets.
"Intel was not aware of this case, Intel was not contacted by authorities and has not been contacted by authorities, but we are looking into the matter," Mulloy said.
-- With additional reporting by Joseph F. Kovar, Rick Whiting and Damon Poeter.