Former IBM Server Chief and Potential Heir Gets Six Months in Prison
September 20, 2010 Timothy Prickett Morgan
Last week in U.S. District Court in New York, Judge Deborah Batts sentenced Robert Moffat, formerly the senior vice president in charge of IBM‘s Systems and Technology Group and once in the line to succeed Sam Palmisano to run Big Blue, to six months in prison for his part in the Galleon-New Castle insider trading scam that erupted last October.
The scam centered around Raj Rajaratnam, the (formerly) billionaire founder of the $7 billion Galleon Group hedge fund, and Danielle Chiesi, an employee of hedge fund New Castle Partners, and the information they allegedly gathered on high-tech companies and shared with each other to make insider trades on the stocks for illegal profit. So far, 21 people have been indicted in the scam, and 12 have pleaded guilty.
Moffat, who used to run IBM’s PC and printer divisions, moved on to take over the company’s supply chain to wring costs out of Big Blue, and was tapped to run System and Technology Group in the wake of Bill Zeitler’s retirement in May 2008. Moffat, who is 54, has been at IBM for 39 years and like all executives who make it to the top of any organization, was known for being tough and for letting the numbers decide the fate of projects and products. (I think the fact that Moffat is no longer at IBM means IBM is more likely to continue to invest in Power processor and server technology, and to continue to enhance, not just support, the IBM i platform.) Moffat had served on the Lenovo board of directors after IBM sold off its PC unit to the Chinese company several years ago.
In addition to sentencing Moffat to six months in prison, Judge Batts imposed a $50,000 fine for insider information charges relating to the business of IBM, chip maker Advanced Micro Devices, and PC maker Lenovo. Moffat supplied Chiesi, whom he has admitted he had an “intimate” relationship with, with insider information regarding these three companies between August and October 2008. Judge Batts also sentenced Moffat to a two-year term of supervised release upon completion of his jail term.
“As a senior executive at IBM, Robert Moffat was entrusted with secret and valuable information,” said U.S. Attorney for the district of Manhattan, who has managed the Galleon Group sting operation. “As today’s sentence reflects, illegally betraying that trust is a serious crime, and even high-flying executives do not receive get-out-of-jail-free cards for participation in insider trading. This Office, along with our partners at the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission, will continue to pursue illegal insider trading, which compromises the integrity of our markets.”
Moffat was never charged with doing any insider trading of his own or in any way benefiting from the information he gave to Chiesi. At Moffat’s request, Judge Batts allowed him to get his affairs together and go to his daughter’s graduation next year before voluntarily beginning to serve his sentence in June 2011. But on second thought, Moffat filed a request with the judge to be allowed to begin serving his sentence on November 5, missing the holidays but being out by May and in time for graduation. The judge granted this request.