Amd
On Oct. 16, Moffat had his own day in history when he was arrested in what federal prosecutors are calling the biggest insider-trading scheme involving hedge funds. The 53-year-old executive is accused of leaking information about the earnings of IBM and Sun Microsystems Inc. and a restructuring of Advanced Micro Devices Inc. to Danielle Chiesi, a consultant for New Castle Funds LLC.
A 31-year-veteran of IBM, Moffat headed the personal- computer division, helped sell that unit off, reduced the number of suppliers the company used and, until he was put on temporary leave on Oct. 19, was senior vice president overseeing the mainframe, server and storage-device businesses. Before his arrest, he was among the candidates to succeed Sam Palmisano, 58, as chief executive officer of the worlds largest computer- services company, according to people familiar with IBMs thinking.
Moffat was not aware of the insider trading mentioned in the federal criminal complaint, nor did he financially benefit from the alleged activity, said Kerry Lawrence, his attorney.
“Its our view that Bob did not commit any crimes or disclose any information that would lead to him having criminal liability,” Lawrence said.
Its All a Mistake
“This guy is the most honest, hardest-working IBMer, true- blue worker you will ever meet in your life,” said Joe Formichelli, a former colleague of Moffats in IBMs PC unit who is now retired. “I dont know how he got tangled up in this mess. I want to believe its all wrong, its all a mistake. I will never believe it until hes found guilty.”
The complaint, which quotes from wiretap transcripts, describes Chiesi, 43, as a friend of Moffats. It relates a call on August 22, 2008, during which the two discuss a tentative and secret agreement by AMD to spin off its manufacturing operations into a joint-venture backed by AMD and the Abu Dhabi government. IBM had signed a technology licensing agreement with the new entity, Moffat said in the complaint. Chiesi asked him what the chances were that the AMD restructuring deal would fall apart.
“Zero,” Moffat allegedly said. “I see no way that it doesnt get done.”
My IBM Guy
According to the complaint, Moffat said the transaction, which would also draw a major investment in AMD from an Abu Dhabi sovereign wealth fund, would close in six to eight weeks. The complaint said that Chiesi and Galleon founder Raj Rajaratnam discussed how the deal would boost AMDs stock.
Moffat later allegedly fed Chiesi insider information about Sun, which IBM was in discussions to acquire. On Jan. 26, Chiesi called a cooperating witness to discuss what she had learned from Moffat who, according to the complaint, was conducting due diligence on Sun.
New Castle and Galleon, both based in New York, lost money on their investments in AMD, whose restructuring was announced in October 2008. New Castle made a $900,000 profit on its purchases of Sun stock prior to that companys announcement in January, of earnings that topped analysts expectations. The firm made a $500,000 profit selling IBM stock bought prior to that companys earnings announcement, also in January, according to the complaint.
Very Surprising
Shaw Wu, a technology analyst at Kaufman Bros. LP in San Francisco, said he couldnt square the news of Moffats arrest with the archetypal IBM executive he last saw in July, at a company analyst day.
“It was very surprising,” said Wu. “Hes a company man, very careful with his answers. He knows where the line is.”
Moffat, approached for comment at his Ridgefield, Connecticut, home on Oct. 19, came to the door in jeans and a t- shirt and accompanied by a dog. He declined to comment.
IBM spokesman Edward Barbini declined to comment for this story.
Alan Kaufman, the attorney for Chiesi, said in an interview after her arrest that his client was “shocked” at her arrest and will plead innocent.