Click here to close now.

Welcome!

Search Authors: Blue Box Blog, Pat Romanski, Tech Spot, Vormetric Blog, Elizabeth White

Related Topics: Virtualization, Java, Microservices Journal

Virtualization: Article

Why IBM’s Server Chief Got Busted

The FBI figures New Castle was up about $500,000 on Moffat’s information

The United States government has accused Robert Moffat, IBM’s server chief, the guy who was negotiating to buy Sun, with betraying Sun’s financial position to Danielle Chiesi, an employee of New Castle Partners, a New York hedge fund, so she could trade on the insider information.

Moffat knew what Sun’s numbers were going to be because he was one of the nine IBMers doing due diligence at Sun this past January.

In a wire-tapped phone call Chiesi made to an unidentified person now cooperating with the government’s investigation she said, “IBM is looking at it as a takeover. The only reason my guy would know that is because it’s his deal. Like, he’s in bed with them….You see what I mean…not because he’s just speculating.”

The news that IBM was negotiating to buy Sun didn’t leak to the Wall Street Journal and hence to the world for another two months.

Armed with the foreknowledge allegedly provided by Moffat that Sun was going to beat the Street – top and bottom – when it reported its December ’08 quarter, New Castle bought Sun shares just hours before Sun posted its numbers on January 27 and made a $900,000 killing on the deal.

The government says Moffat had practice slipping Chiesi insider financial information. When the global economy started melting down last year, he had dinner with her in early September, before IBM’s quarter closed, and reassured her that IBM would pull it out. According to a taped phone call with an unidentified affiliate of New Castle, she said, “He’s saying, you know, [IBM’s] zSeries looks really good. He’s saying that everything looks fine but…it comes down to the…final last week. But he thinks right now that they are on track. As of right now he’s not even worried a little bit, I mean, we think we can beat the numbers this quarter.” Chiesi apparently held onto her position in IBM’s stock.

Then again this past January, when IBM was due to report the results of its December quarter and Chiesi had spoken with Moffat New Castle covered a short position in IBM stock and began picking up more shares.

The government tap found her explaining to the person who’s now a government witness, “I’m buying IBM going into the print,” Wall Street parlance for IBM posting its numbers. “If I wasn’t closer to the situation I’d be, I would so short this fucking thing. But I’m thinking they could beat, and they really could guide up….You know, my guy said easily they could, they could add 30 cents to the bottom line. Easily, easily. That’s what he says, to the bottom line in ’09….I don’t think anybody is talking about a beat this quarter.”

The government’s complaint notes that on January 20 IBM’s Q4 earnings beat analyst expectations by 25 cents and that it expected to do 27 cents better this year than last.

The FBI figures New Castle was up about $500,000 on Moffat’s information.

Three months later Chiesi flat out asked Moffat what IBM’s quarter looked like. She was apparently told the company would miss on revenues by 7%, “miss the short-term signings but make total signings” and earnings per share would be “good,” which is exactly what happened on April 20.

Having made money on Sun’s financial results once, Chiesi got her “ass kicked,” she’s reported saying, on Sun stock when Oracle unexpectedly waltzed in with a $9.50-a-share bid to acquire the company on April 20, supporting the widely held perception that IBM was dumbfounded at the move.

Chiesi was short the stock allegedly because Moffat had told her Sun’s revenues would be down 27% when it reported its March quarter. The Street only estimated it would be down 17%. She was also gambling on Moffat telling her if IBM was going to buy Sun. She hadn’t reckoned on Oracle or Moffat not knowing what was going on.

Moffat is charged with three counts of conspiracy to commit securities fraud, one each for Sun and IBM and the third for AMD, where Moffat in his capacity as head of IBM Microelectronics was in on AMD’s negotiations to spin off its factories into a joint venture with the government of Abu Dhabi. IBM would have to license the venture some of its technology.

In the AMD case they seem to have proven inept conspirators and Chiesi even had a pipeline into AMD in the form of a chatty unidentified AMD executive who apparently hasn’t been charged with any crime. For all the reported discussions between Moffat and Chiesi of the deal’s structure, terms, voting rights, dilution, government approvals, management and timing of the announcement, the government thinks New Castle didn’t profit from its trades in AMD stock “due in part to a global financial crisis that precipitated a broad decline in stock markets in or about September and October 2008.”

New Castle had bought a swat of AMD at $5.44 and another at $4.50 pre-announcement and didn’t begin selling until the price had sunk to $4.25. However, the government’s not sure that New Castle didn’t avoid certain losses by selling put options the day before the announcement, which the hedge fund knew was set for October 7, 2008.

The FBI says Chiesi had been worried that she “would make so much money that her trading might the attention of regulators” so maybe she was relieved in a way.

By her own admission she would never have dabbled in AMD stock without having an inside track. She told New Castle president Mark Kurland that “Unless you were on the phone with [the AMD executive] and had Moffat at you house last night, who the fuck would be buying it honestly.” And to the alleged kingpin of the scheme, billionaire hedge fund manager Raj Rajaratnam, now out on $100 million bail, she was overheard to say she “wouldn’t of touched [AMD’s stock] with a fucking 10-foot pole” if she “wasn’t close to the company.”

According to the US Attorney Moffat is looking at doing five years in jail and paying a fine of $250,000 or twice his gross gain or loss. His playmates are looking at worse.

It’s unclear from either of the two complaints that the government filed with the federal court in New York Friday how exactly Moffat was to benefit financially from the intrigue.

He was the only one of the six people in the ring charged Friday to turn himself in. They went and arrested the others. It’s unclear whether he’s still working for IBM, the company not being exactly forthcoming right now. His bio had disappeared from IBM’s site by early Saturday morning. IBM executives, by the way, are supposed to be well-compensated.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

Comments (1) View Comments

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.


Most Recent Comments
MADAME P J BAILEY 10/22/09 11:37:33 AM EDT

Moffat & IBM CEO Palmisano made parallel IBM stock trades on 08-21-08. Palmisano cleaned out the till on August 28, 2009. Will Palmisano's arrest be next ? Visit - ibmTheWidowMaker com

@ThingsExpo Stories
SYS-CON Events announced today that Vitria Technology, Inc. will exhibit at SYS-CON’s @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Vitria will showcase the company’s new IoT Analytics Platform through live demonstrations at booth #330. Vitria’s IoT Analytics Platform, fully integrated and powered by an operational intelligence engine, enables customers to rapidly build and operationalize advanced analytics to deliver timely business outcomes for use cases across the industrial, enterprise, and consumer segments.
SYS-CON Events announced today that Alert Logic, the leading provider of Security-as-a-Service solutions for the cloud, has been named “Bronze Sponsor” of SYS-CON's 16th International Cloud Expo® and DevOps Summit 2015 New York, which will take place June 9-11, 2015, at the Javits Center in New York City, NY, and the 17th International Cloud Expo® and DevOps Summit 2015 Silicon Valley, which will take place November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA.
SYS-CON Events announced today that kintone has been named “Bronze Sponsor” of SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY, and the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. kintone promotes cloud-based workgroup productivity, transparency and profitability with a seamless collaboration space, build your own business application (BYOA) platform, and workflow automation system.
SYS-CON Events announced today that Akana, formerly SOA Software, has been named “Bronze Sponsor” of SYS-CON's 16th International Cloud Expo® New York, which will take place June 9-11, 2015, at the Javits Center in New York City, NY. Akana’s comprehensive suite of API Management, API Security, Integrated SOA Governance, and Cloud Integration solutions helps businesses accelerate digital transformation by securely extending their reach across multiple channels – mobile, cloud and Internet of Things. Akana enables enterprises to share data as APIs, connect and integrate applications, drive part...
SYS-CON Events announced today that CommVault has been named “Bronze Sponsor” of SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY, and the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. A singular vision – a belief in a better way to address current and future data management needs – guides CommVault in the development of Singular Information Management® solutions for high-performance data protection, universal availability and sim...
SYS-CON Events announced today that SafeLogic has been named “Bag Sponsor” of SYS-CON's 16th International Cloud Expo® New York, which will take place June 9-11, 2015, at the Javits Center in New York City, NY. SafeLogic provides security products for applications in mobile and server/appliance environments. SafeLogic’s flagship product CryptoComply is a FIPS 140-2 validated cryptographic engine designed to secure data on servers, workstations, appliances, mobile devices, and in the Cloud.
SYS-CON Events announced today that StorPool Storage will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. StorPool is distributed storage software that allows service providers, enterprises and other cloud builders to run data storage on standard x86 servers, instead of using expensive and inefficient storage arrays (SAN).
SYS-CON Events announced today that Site24x7, the cloud infrastructure monitoring service, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Site24x7 is a cloud infrastructure monitoring service that helps monitor the uptime and performance of websites, online applications, servers, mobile websites and custom APIs. The monitoring is done from 50+ locations across the world and from various wireless carriers, thus providing a global perspective of the end-user experience. Site24x7 supports monitoring H...
SYS-CON Events announced today that Intelligent Systems Services will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Established in 1994, Intelligent Systems Services Inc. is located near Washington, DC, with representatives and partners nationwide. ISS’s well-established track record is based on the continuous pursuit of excellence in designing, implementing and supporting nationwide clients’ mission-critical systems. ISS has completed many successful projects in Healthcare, Commercial, Manufacturing, ...
SYS-CON Events announced today that B2Cloud, a provider of enterprise resource planning software, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. B2cloud develops the software you need. They have the ideal tools to help you work with your clients. B2Cloud’s main solutions include AGIS – ERP, CLOHC, AGIS – Invoice, and IZUM
SYS-CON Events announced today that Vicom Computer Services, Inc., a provider of technology and service solutions, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. They are located at booth #427. Vicom Computer Services, Inc. is a progressive leader in the technology industry for over 30 years. Headquartered in the NY Metropolitan area. Vicom provides products and services based on today’s requirements around Unified Networks, Cloud Computing strategies, Virtualization around Software defined Data Ce...
SYS-CON Events announced today that Tufin, the market-leading provider of Security Policy Orchestration Solutions, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. As the market leader of Security Policy Orchestration, Tufin automates and accelerates network configuration changes while maintaining security and compliance. Tufin's award-winning Orchestration Suite™ gives IT organizations the power and agility to enforce security policy across complex, multi-vendor enterprise networks. With more than 1...
SYS-CON Events announced today that Optimal Design, an Internet of Things solution provider, will exhibit at SYS-CON's Internet of @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Optimal Design is an award winning product development firm offering industrial design and engineering services to the consumer, medical, and defense markets.
SYS-CON Events announced today that MangoApps will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY., and the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. MangoApps provides private all-in-one social intranets allowing workers to securely collaborate from anywhere in the world and from any device. Social, mobile, and easy to use. MangoApps has been named a "Market Leader" by Ovum Research and a "Cool Vendor" by Gartner...
SYS-CON Events announced today that Cloudian, Inc., the leading provider of hybrid cloud storage solutions, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Cloudian, Inc., is a Foster City, California - based software company specializing in cloud storage software. The main product is Cloudian, an Amazon S3-compliant cloud object storage platform, the bedrock of cloud computing systems, that enables cloud service providers and enterprises to build reliable, affordable and scalable cloud storage solu...
SYS-CON Events announced today that Gridstore™, the leader in hyper-converged infrastructure purpose-built to optimize Microsoft workloads, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Gridstore™ is the leader in hyper-converged infrastructure purpose-built for Microsoft workloads and designed to accelerate applications in virtualized environments. Gridstore’s hyper-converged infrastructure is the industry’s first all flash version of HyperConverged Appliances that include both compute and storag...
SYS-CON Events announced today that Creative Business Solutions will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Creative Business Solutions is the top stocking authorized HP Renew Distributor in the U.S. Based out of Long Island, NY, Creative Business Solutions offers a one-stop shop for a diverse range of products including Proliant, Blade and Industry Standard Servers, Networking, Server Options and Care Packs. As a trusted supplier, CBS guarantees quality controlled stock levels thanks to an Auto...
How is unified communications transforming the way businesses operate? In his session at WebRTC Summit, Arvind Rangarajan, Director of Product Marketing at BroadSoft, will discuss how to extend unified communications experience outside the enterprise through WebRTC. He will also review use cases across different industry verticals. Arvind Rangarajan is Director, Product Marketing at BroadSoft. He has over 19 years of experience in the telecommunications industry in various roles such as Software Development, Product Management and Product Marketing, applied across Wireless, Unified Communic...
What exactly is a cognitive application? In her session at 16th Cloud Expo, Ashley Hathaway, Product Manager at IBM Watson, will look at the services being offered by the IBM Watson Developer Cloud and what that means for developers and Big Data. She'll explore how IBM Watson and its partnerships will continue to grow and help define what it means to be a cognitive service, as well as take a look at the offerings on Bluemix. She will also check out how Watson and the Alchemy API team up to offer disruptive APIs to developers.
The IoT Bootcamp is coming to Cloud Expo | @ThingsExpo on June 9-10 at the Javits Center in New York. Instructor. Registration is now available at http://iotbootcamp.sys-con.com/ Instructor Janakiram MSV previously taught the famously successful Multi-Cloud Bootcamp at Cloud Expo | @ThingsExpo in November in Santa Clara. Now he is expanding the focus to Janakiram is the founder and CTO of Get Cloud Ready Consulting, a niche Cloud Migration and Cloud Operations firm that recently got acquired by Aditi Technologies. He is a Microsoft Regional Director for Hyderabad, India, and one of the f...