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IBM's top hardware executive, Robert Moffat, has been arrested for giving an insider trading tip to a female friend.  (Source: CRN.com)

Billonaire investor Raj Rajaratnam masterminded the scheme that may land an IBM and Intel exec, as well as an executive at a company that advised AMD, in prison.  (Source: Onlanka News)
Some high profile executives may be finding their way to a white-collar prison

In a move that could rock the electronics industry, "classic IBM executive" Robert Moffat, IBM's highest ranking hardware executive and likely CEO-successor has been indicted on charges of insider trading that may land him a prison sentence.  But he isn't alone.  Also receiving indictments were Rajiv Goel, a managing director of Intel subsidiary, Intel Capital and Anil Kumar, a director at consulting firm McKinsey & Co. and advisor to AMD.  The trio were among six top executives targeted in the case, which federal prosecutors are calling the biggest to date.

The trio from Intel, IBM, and AMD's advising firm reportedly used their insider insight to help a high profile investor gain more than $25M USD in ill-begotten profits between 2006 and 2009, trading Advanced Micro Devices, Akamai, Clearwire, Google, Hilton, Polycom, and Sun Microsystems, among others.  Some of the defendants apparently broke the law for kickbacks, others, such as Mr. Moffat, out of friendship. 

The feds reportedly caught the defendants in their carefully crafted and timed insider trades, thanks to wiretaps of their phone conversation.  And insider informant also reportedly played a pivotal role.  The investigation culminated in the arrest of the six primary players last week.

According to the feds, on January 8, 2007, billionaire investor and founder of the Galleon Group Raj Rajaratnam contacted Intel's Goel seeking inside information.  Mr. Goel was more than happy to oblige, indicating that share prices would likely be rising over the next couple days.  The next day Mr. Rajaratnam followed the inside tip and bought 1 million shares of Intel stock.  On January 11 he loaded up with 500,000 more shares.

Then on January 16, Mr. Rajaratnam sold all of his Intel stock, pocketing a $1M USD profit.  Later that day Intel earnings were reported and failed to excite, plunging the share prices 5 percent.  However, Mr. Rajaratnam and his Intel contact had beat the system -- or so they thought.

Mr. Goel wasn't finished, though.  He also allegedly tipped Mr. Rajaratnam off about an impending deal between Clearwire and Sprint.  An early purchase was enough to score another $750,000 in profits.  Mr. Rajaratnam returned the illegal love, executing insider trades for Mr. Goel on Hilton and PeopleSupport stock which handed the Intel executive $250,000 in profits.

The story was similar for Robert Moffat, an IBM golden boy.  The well-liked executive was close friends with Danielle Chiesi, an executive of the hedge fund New Castle Partners.  During a courtship of Sun, IBM got access to Sun's upcoming tax information.  And Mr. Moffat leaked this information to Ms. Chiesi. She pocketed $1M USD when shares later soared upon the official release of Sun's good financial news.

AMD's stock was another tied into the illegal trades.  Galleon reportedly made $9.5M USD off its stock after receiving inside tips from Anil Kumar, who had knowledge of how the company would be offloading much of its semiconductor manufacturing capabilities in mid 2008.  In the end, though, justice was at least served on these gains, somewhat, by the market -- they were almost entirely wiped out when the recession hit in full.

Robert Khuzami, director of the SEC’s enforcement division concludes, "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. 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."

The investigation of these illegal dealings is far from over.  Meanwhile, the accused vow to fight the government's charges in U.S. District Court for the Southern District of New York.  In the meantime Mr. Goel has been placed on leave from Intel, pending the investigation.  IBM declined comment about its star executive or what actions it might take.





"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive
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