Insider Trading Scandal Revolves Around Tech Giants' Mega-Deals

accused of insider trading

The only individuals associated with those companies who have been charged with crimes are Robert Moffat, a senior vice president at Armonk, N.Y.-based IBM, and Rajiv Goel, a managing director for investments in Santa Clara, Calif.-based Intel's Treasurer's office.

Two criminal complaints were filed Friday by federal prosecutors with the Manhattan U.S. Attorney's office, which had monitored electronic communications and conducted wiretaps on the telephones of several of the defendants as far back as 2006. The complaints detail a series of communications between the defendants that involve confidential information about such mega-deals as AMD's spin-off of its manufacturing assets in late 2008 and IBM's potential acquisition of Sun in early 2009.

The first complaint alleges insider trading between Raj Rajaratnam, the billionaire founder of the technology-focused hedge fund the Galleon Group, Anil Kumar, a director at the consulting firm McKinsey & Co. and Intel's Goel.

Rajaratnam, Kumar and Goel are charged with making stock transactions based on confidential information shared before the fact about such pending deals as Sunnyvale, Calif.-based AMD's deal with Abu Dhabi-based investors to spin off the chip maker's silicon fabrication facilities. Further charges describe the sharing of inside knowledge about pending quarterly earnings reports from several publicly traded technology companies, including Mountain View, Calif.-based search giant Google and Pleasanton, Calif.-based telecommunications vendor Polycom.

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The complaint also charges Rajaratnam and Goel with profiteering from insider information about Santa Clara, Calif.-based Intel's 2008 investments in Clearwire, a wireless broadband ISP. Insider trading involving Internet hosting company Akamai Technologies and the Hilton Hotels group is also identified in the filing.

Goel is alleged to have received payment for information he passed on to Rajaratnam and the Galleon Group in the form of profitable trades made by Rajaratnam in Goel's personal brokerage account with Charles Schwab, according to the complaint. Goel has been placed on administrative leave by Intel pending the company's investigation into the charges, according to a spokesman for Intel.

Rajaratnam also plays a role in the second complaint, although those specifically charged in that filing are IBM's Moffat, Danielle Chiesi, portfolio manager at $1 billion hedge-fund firm New Castle Partners, and Mark Kurland, a senior managing director and general partner at New Castle, a former equity hedge-fund group of Bear Stearns Asset Management.

The AMD manufacturing spin-off that split the chip maker into two companies plays a major part in the second complaint. Moffat, Chiesi and Kurland are charged with sharing confidential details with Rajaratnam about the deal in August 2008, well ahead of AMD's public announcement of the spin-off on Oct. 7, 2008.

The complaint also alleges that Moffat provided Chiesi with insider information about Santa Clara, Calif.-based Sun's financials ahead of Sun's quarterly earnings report in January 2009. According to Chiesi's statements in a recorded telephone conversation that is transcribed in the complaint, she seems to believe that Moffat acquired the Sun financial information in his role as a member of IBM's due diligence team that was investigating Sun ahead of a possible acquisition.

That deal never happened -- instead, Redwood City, Calif.-based Oracle announced its intention to acquire Sun in April and currently awaits approval from European regulators for the deal to go through.