- October 17, 2009 -  

 

Breaking Supply Chain News: IBM’s Bob Moffat, Head of Supply Chain and Rising Star, Arrested for Insider Trading

 
 

Moffat Gained Fame for Leading 10-Year Charge to Integrate IBM’s Vast Global Supply Chain, was Potential Future CEO of the Company

 
 

 

SCDigest Editorial Staff

SCDigest Says:
Moffat, 53, gained industry fame for leading the technology giant’s decade long and ultimately successful effort to integrate its vast and complex supply chain across business units and geographies starting in the mid-1990s.

The supply chain world was rocked this weekend when Robert (Bob) Moffat, one of the industry’s highest profile executives, was arrested in New York as part of a major investigation on so-called “insider trading” involving a Wall Street billionaire.

 

Moffat, 53, gained industry fame for leading the technology giant’s decade long and ultimately successful effort to integrate its vast and complex supply chain across business units and geographies starting in the mid-1990s. He and a number of his reports have told that story in print and at various conferences and events many times since the supply chain integration effort was complete.

 

After that success, Moffat had more recently also been given responsibility for IBM’s hardware, server and its semiconductor businesses. He was often mentioned as a potential CEO candidate at the company down the road.

 

Moffat was arrested as part of a long investigation at the center of which was Raj Rajaratnam, founder of Galleon Group, a New York-based investment fund, whose personal fortune is said to $1.5 billion. In addition to Moffat and Rajaratnam, four others were also arrested, including executives from Intel and consulting giant McKinsey. They are accused of participating in a ring that shared information that would enable Rajaratnam to improve the performance of his fund.

 

Four of the six, including Rajaratnam, were charged with securities fraud and conspiracy to commit securities fraud. Moffat was only charged with conspiracy.

 

The core of the case seems to be that Rajaratnam and his group allegedly swapped information that could move a stock, enabling the fund to trade ahead of that news. The feds have been using court authorized wire taps to gain evidence for many months, after having been tipped off by an unnamed informant of the activities.

 

According to the Wall Street Journal, Moffat's lawyer, Kerry Lawrence, said his client was "shocked" by the charges. "We look forward to a favorable resolution of the case," Lawrence said.

 

It is not clear exactly what the allegations here are, but it appears that the charges are that those arrested besides Rajaratnam themselves had contacts in other companies, forming a sort of network. Information they provided led to improved investment decisions, such as knowing a potential takeover or buy-out nefore it was announced. How the network participants were known to Rajaratnam or how the scheme developed is not clear.

 

For example, Moffat is alleged to have funneled information about companies such as Akamai Technologies, Sun Microsystems, and Advanced Micro Devices through his contacts in those firms, and possibly information about IBM itself ahead of its quarterly earnings results.

 

The initial information from federal authorities has also not clarified exactly what was in it for those in the network other than Rajaratnam, who would benefit directly and indirectly from the improved performance of his fund.

 

However, it is implied that the “informants” were financially compensated in some way.

 

For example, transcripts from the wire taps showed Rajaratnam and Danielle Chiesi, a portfolio manager at hedge fund New Castle Partners and the alleged conduit between Rajaratnam and the informant network, discussing Moffat.

 

"Put him in some company where we can trade well," Rajaratnam told Chiesi on a recorded telephone call in September, 2008 – which it now appears had to do with Moffat potentially taking the CEO job at a company outside IBM.


Insider trading has long been a tricky legal concept, and where exactly the line is drawn between legal discussions about the industry or companies and when it moves to illegal insider trading is sometimes in the eye of the beholder.

 

Also, it is common for only one side to be guilty of legal violations, such as one party having inside information and gaining no benefit, but communicating that information to others who do take action to their gain.

 

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