IBM Server Chief On Leave Following Arrest - InformationWeek

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IT Leadership // IT Strategy
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10/19/2009
04:17 PM
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IBM Server Chief On Leave Following Arrest

Robert Moffat booked on insider trading charge along with other tech and investment bigs.

IBM placed senior VP Robert W. Moffat on leave following his arrest last week on a securities fraud charge stemming from his alleged involvement in what authorities called the largest hedge fund insider trading scheme in history.

Moffat oversaw IBM's $19 billion Systems and Technology group, which develops and sells servers and other business computing hardware. His duties will be assumed on an interim basis by IBM veteran Rodney Adkins, a spokesman said Monday.

Moffat also has been removed from his post as an IBM corporate officer, said the spokesman, who declined to comment further on the case.

Moffat and several alleged accomplices from the tech and investment industries were arrested Oct. 16 on a range of insider trading charges. Also charged were Raj Rajaratnam, of Galleon Management, Danielle Chiesi and Mark Kurland, of New Castle Funds, Anil Kumar, of consulting firm McKinsey, and Intel Strategic Investments director Rajiv Goel.

Authorities fingered Galleon's Rajaratnam as the alleged mastermind of the scheme, which involved numerous individuals. "All are charged with insider trading schemes that netted more than $20 million in illegal profits," said a statement released last week by the office of the U.S. Attorney for the Southern District of New York.

"The charges contained in the complaints are merely accusations, and the defendants are presumed innocent until proven guilty," the U.S. Attorney's office added.

U.S. Attorneys worked on the case for months with investigators from the Federal Bureau of Investigation. The defendants are alleged to have illegally shared insider information through telephones that had been secretly tapped by the authorities.

Among other things, prosecutors allege that in August of last year Moffat was caught on tape informing Chiesi of AMD's plans to spin off its chip manufacturing arm into a separate company, to be called Foundry, that would be partly financed by investors from Abu Dhabi.

"When asked the chances that the deal would fail, Moffat replied, 'Zero,'" prosecutors allege. The prosecutors contend that Moffat was privy to AMD's plans because the deal required Foundry to license certain technologies from IBM.

Prosecutors also contend that Chiesi obtained insider information from Moffat concerning Sun Microsystems. IBM was reportedly in talks to acquire Sun earlier this year, but the company was ultimately snapped up by Oracle in April for $7.4 billion.

Prosecutors allege that Moffat, Kurland, and Chiesi "engaged in overlapping schemes to commit insider trading."

Moffat was charged with one count of Conspiracy to Commit Securities Fraud. He faces up to five years in prison if convicted. He also faces fines of up to $250,000, or twice the gross gain or loss from any transactions related to the alleged scheme.

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