@CloudExpo Authors: Dana Gardner, Elizabeth White, Andreas Grabner, Janakiram MSV, Rich DeFabritus

Related Topics: Containers Expo Blog, Java IoT, Microservices Expo

Containers Expo Blog: 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

@CloudExpo Stories
In his session at Cloud Expo, Robert Cohen, an economist and senior fellow at the Economic Strategy Institute, will provide economic scenarios that describe how the rapid adoption of software-defined everything including cloud services, SDDC and open networking will change GDP, industry growth, productivity and jobs. This session will also include a drill down for several industries such as finance, social media, cloud service providers and pharmaceuticals.
We are always online. We access our data, our finances, work, and various services on the Internet. But we live in a congested world of information in which the roads were built two decades ago. The quest for better, faster Internet routing has been around for a decade, but nobody solved this problem. We’ve seen band aid approaches like CDNs that attack a niche's slice of static content part of the Internet, but that’s it. It does not address the dynamic services-based Internet of today. It doe...
Ask someone to architect an Internet of Things (IoT) solution and you are guaranteed to see a reference to the cloud. This would lead you to believe that IoT requires the cloud to exist. However, there are many IoT use cases where the cloud is not feasible or desirable. In his session at @ThingsExpo, Dave McCarthy, Director of Products at Bsquare Corporation, will discuss the strategies that exist to extend intelligence directly to IoT devices and sensors, freeing them from the constraints of ...
Intelligent machines are here. Robots, self-driving cars, drones, bots and many IoT devices are becoming smarter with Machine Learning. In her session at @ThingsExpo, Sudha Jamthe, CEO of IoTDisruptions.com, will discuss the next wave of business disruption at the junction of IoT and AI, impacting many industries and set to change our lives, work and world as we know it.
DevOps is being widely accepted (if not fully adopted) as essential in enterprise IT. But as Enterprise DevOps gains maturity, expands scope, and increases velocity, the need for data-driven decisions across teams becomes more acute. DevOps teams in any modern business must wrangle the ‘digital exhaust’ from the delivery toolchain, "pervasive" and "cognitive" computing, APIs and services, mobile devices and applications, the Internet of Things, and now even blockchain. In this power panel at @...
By now most people have either created their configuration management solution or are just embarking on this journey. In his session at @DevOpsSummit at 19th Cloud Expo, Marco Ceppi, a DevOps Engineer working at Canonical, will discuss how to take configuration management to the next level with modelling and orchestration. He will also discuss how and why people are moving from a machine-centric view to a service/application-oriented view of deployments, and how you can leverage the knowledge a...
@ThingsExpo has been named the Top 5 Most Influential M2M Brand by Onalytica in the ‘Machine to Machine: Top 100 Influencers and Brands.' Onalytica analyzed the online debate on M2M by looking at over 85,000 tweets to provide the most influential individuals and brands that drive the discussion. According to Onalytica the "analysis showed a very engaged community with a lot of interactive tweets. The M2M discussion seems to be more fragmented and driven by some of the major brands present in the...
In the 21st century, security on the Internet has become one of the most important issues. We hear more and more about cyber-attacks on the websites of large corporations, banks and even small businesses. When online we’re concerned not only for our own safety but also our privacy. We have to know that hackers usually start their preparation by investigating the private information of admins – the habits, interests, visited websites and so on. On the other hand, our own security is in danger bec...
Enterprises have been using both Big Data and virtualization for years. Until recently, however, most enterprises have not combined the two. Big Data's demands for higher levels of performance, the ability to control quality-of-service (QoS), and the ability to adhere to SLAs have kept it on bare metal, apart from the modern data center cloud. With recent technology innovations, we've seen the advantages of bare metal erode to such a degree that the enhanced flexibility and reduced costs that cl...
Fact: storage performance problems have only gotten more complicated, as applications not only have become largely virtualized, but also have moved to cloud-based infrastructures. Storage performance in virtualized environments isn’t just about IOPS anymore. Instead, you need to guarantee performance for individual VMs, helping applications maintain performance as the number of VMs continues to go up in real time. In his session at Cloud Expo, Dhiraj Sehgal, Product and Marketing at Tintri, wil...
As software becomes more and more complex, we, as software developers, have been splitting up our code into smaller and smaller components. This is also true for the environment in which we run our code: going from bare metal, to VMs to the modern-day Cloud Native world of containers, schedulers and microservices. While we have figured out how to run containerized applications in the cloud using schedulers, we've yet to come up with a good solution to bridge the gap between getting your conta...
19th Cloud Expo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterpri...
Amazon has gradually rolled out parts of its IoT offerings, but these are just the tip of the iceberg. In addition to optimizing their backend AWS offerings, Amazon is laying the ground work to be a major force in IoT - especially in the connected home and office. In his session at @ThingsExpo, Chris Kocher, founder and managing director of Grey Heron, explained how Amazon is extending its reach to become a major force in IoT by building on its dominant cloud IoT platform, its Dash Button strat...
You have great SaaS business app ideas. You want to turn your idea quickly into a functional and engaging proof of concept. You need to be able to modify it to meet customers' needs, and you need to deliver a complete and secure SaaS application. How could you achieve all the above and yet avoid unforeseen IT requirements that add unnecessary cost and complexity? You also want your app to be responsive in any device at any time. In his session at 19th Cloud Expo, Mark Allen, General Manager of...
SYS-CON Events announced today that Streamlyzer will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Streamlyzer is a powerful analytics for video streaming service that enables video streaming providers to monitor and analyze QoE (Quality-of-Experience) from end-user devices in real time.
Cloud based infrastructure deployment is becoming more and more appealing to customers, from Fortune 500 companies to SMEs due to its pay-as-you-go model. Enterprise storage vendors are able to reach out to these customers by integrating in cloud based deployments; this needs adaptability and interoperability of the products confirming to cloud standards such as OpenStack, CloudStack, or Azure. As compared to off the shelf commodity storage, enterprise storages by its reliability, high-availabil...
The IoT industry is now at a crossroads, between the fast-paced innovation of technologies and the pending mass adoption by global enterprises. The complexity of combining rapidly evolving technologies and the need to establish practices for market acceleration pose a strong challenge to global enterprises as well as IoT vendors. In his session at @ThingsExpo, Clark Smith, senior product manager for Numerex, will discuss how Numerex, as an experienced, established IoT provider, has embraced a ...
“Media Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. CloudBerry Backup is a leading cross-platform cloud backup and disaster recovery solution integrated with major public cloud services, such as Amazon Web Services, Microsoft Azure and Google Cloud Platform.
In the next forty months – just over three years – businesses will undergo extraordinary changes. The exponential growth of digitization and machine learning will see a step function change in how businesses create value, satisfy customers, and outperform their competition. In the next forty months companies will take the actions that will see them get to the next level of the game called Capitalism. Or they won’t – game over. The winners of today and tomorrow think differently, follow different...
@DevOpsSummit has been named the ‘Top DevOps Influencer' by iTrend. iTrend processes millions of conversations, tweets, interactions, news articles, press releases, blog posts - and extract meaning form them and analyzes mobile and desktop software platforms used to communicate, various metadata (such as geo location), and automation tools. In overall placement, @DevOpsSummit ranked as the number one ‘DevOps Influencer' followed by @CloudExpo at third, and @MicroservicesE at 24th.