|By Maureen O'Gara||
|October 18, 2009 09:30 AM EDT||
IBM senior VP Robert Moffat (pictured), the head of IBM's Systems and Technology Group - in other words the guy who runs all of its hardware as well its microelectronics unit - and Intel Capital's director of strategic investment Rajiv Goel, one of its VC people, were arrested Friday morning on insider trading charges.
They were alleged tipsters.
The $20 million scam, involving AMD, Intel, IBM, Akamai, Clearwire and Google stock as well as Polycom's and Hilton Hotels', is said to be the biggest ever pulled off by a hedge fund and had the US Attorney, the FBI and the SEC doing a televised press conference on CNBC this afternoon.
US Attorney Preet Bharara said it was the first time court-authorized wiretaps were used to uncover insider trading.
Authorities also arrested billionaire hedge operator Raj Rajaratnam, the founder of the big $3 billion Galleon Group and manager of the Galleon Technology Funds, identified as the scam's kingpin and described as the richest Sri Lankan in the world, as well as McKinsey director Anil Kumar, and Danielle Chiesi and Mark Kurland of New Castle Partners, the old defunct Bear Stearns Asset Management equity hedge fund group. Kurland is president of New Castle.
Rajaratnam's phones were bugged so the FBI has him on tape. There is also testimony from an unidentified cooperating witness, who recorded some of the conservations and has agreed to plead guilty.
Rajaratnam, who acted on the insider information and was arrested on television hours before he was due to skip the country, was charged with four counts of conspiracy and nine counts of securities fraud. He's looking at a lot of jail time.
Rajaratnam reportedly suspected his conversations had been captured on tape and had booked a flight to Switzerland by way of London for Friday evening.
Moffat allegedly passed information on AMD's arrangements with Abu Dhabi to Chiesi, Rajaratnam's go-between, ahead of AMD spinning off its plants into a joint venture called GlobalFoundry. Rajaratnam was trying to time the market and ironically got burned. He bought 4.9 million shares of AMD way too late to make a killing.
When it still looked liked they would clean up, Chiesi knew she would turn into a "Martha [expletive] Stewart" if found out.
Moffat was party to the AMD deal in his capacity as head of IBM Microelectronics because IBM would be licensing the spun-off entity its technology. They were depending on him for the deal's timing and details.
Moffat also allegedly passed on insider information on IBM and Sun to Chiesi, who told Kurland, and New Castle traded on it, making $500,000 on IBM and $900,000 on Sun.
According to the bugged phone calls, Rajaratnam had notions of moving Moffat to "some company where we can trade well" to which Chiesi replied "I know. I know. I'm thinking of that too. Or just keep him at IBM, you know, because this guy is giving me more information...I'd like to keep him at IBM right now because that's a very powerful place for him. For us too." To which Rajaratnam replies, "Only if he become CEO." Then Chiesi says, "Well, not really. I mean, come one...you know, we nailed it."
Goel, who furnished information obtained on the job about Clearwire and other stocks, had a personal account at Charles Schwab managed by Rajaratnam.
Neither Intel nor IBM has returned calls.
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