Picture this: You are a top executive at one of the biggest technology companies on the planet. You spent 30 years working your tail off, climbing the corporate ladder, building your reputation, and it all paid off. You're set for life; you can retire tomorrow and never have to worry about money as long as you live.
So what do you do? You leak all kinds of inside information on upcoming earnings releases and a high-profile restructuring and spinoff to a friend at a hedge fund who you know is going to illegally trade a million shares on the information and let another hedge fund manager in on the fun, too.
But you're caught red-handed on tape by the FBI. Poof, it's all gone. Just like that.
So, can you picture that happening to you? Of course not; neither can I. But it allegedly happened, and not to just one guy, but two.
One is former AMD CEO and Motorola president Hector Ruiz, who yesterday agreed to step down as chairman of AMD spinoff Globalfoundries. Ruiz, apparently caught in the FBI snare, cooperated with the investigation and has not been charged.
The other is Bob Moffat, an IBM senior VP who has been mentioned as a possible successor to IBM CEO Sam Palmisano. Moffat, who was arrested by the feds a couple of weeks ago and charged with conspiracy to commit securities fraud, ended his 31-year career at IBM on Friday.
Other executives charged in the biggest insider trading bust in decades include Rajiv Goel, a managing director at Intel Capital, and Anil Kumar, a director at McKinsey & Co.
The obvious question is why? Why would anyone do something so spectacularly idiotic, so ridiculously self-destructive, so seemingly out of character? Hard to say. The FBI's affidavit leaves little room for doubt. Both executives certainly seemed to know what they were doing when they allegedly leaked material inside information to Danielle Chiesi, of New Castle Partners, who then passed it along to billionaire hedge fund manager Raj Rajaratnam of Galleon.
According to a Wall Street Journal report, wiretaps revealed that Moffat told Chiesi about AMD's turnaround plans and that IBM's earnings would be better than expected. He also allegedly revealed that Sun's revenue and earnings would beat expectations (IBM was considering acquiring Sun).
The Wall Street Journal also reported that Ruiz revealed to Chiesi details and timing of AMD's upcoming restructuring and spinoff of Globalfoundries, including statements like "you know, we're going to shock the hell out of everybody."
Which brings me back to the question of why. One theory, according to the NY Daily News, suggests it's all about testosterone:
For decades, Chiesi, a portfolio manager at New Castle Funds LLC, used her looks to gain access to insider information, sources said.Now, check out this picture of Chiesi. With all due respect, she's no cheerleader. So, got any other theories?
"Everyone that she knew wanted to tell her everything that they could tell her," the insider said. "She very much captured people's attention by her look....They'd want to get close to her. They all gave her tremendous access."
"Wall Street is a locker room," the source added. "You bring a cheerleader into a locker room, that's what happens."
Also check out Is Insider Trading Still Rampant on Wall Street?
[Image of Hector Ruiz from AMD.com, image of Bob Moffat from IBM.com]