Oct. 30 (Bloomberg) -- Former Advanced Micro Devices Inc. Chief Executive Officer Hector Ruiz, implicated in the Galleon Group insider trading scandal, is the highest ranking corporate officer not charged in the case.

An AMD executive gave inside information to Danielle Chiesi, a portfolio manager of New Castle Partners LLC, in violation of his “duties of trust and confidence,” prosecutors said in a criminal complaint against her. She later traded on the data, the complaint states. Ruiz is the AMD executive, according to a person familiar with the matter.

Ruiz, now chairman of Globalfoundries Inc., which was spun off from AMD in 2008, allegedly gave Chiesi a tip on the likely date of the spinoff, the complaint states. Another executive, Robert Moffat, a senior vice president of International Business Machines Corp., also gave inside data on the spinoff that Chiesi traded on, according to the complaint. He was charged with insider trading, as was Chiesi and four others in a ring led by Raj Rajaratnam, the Galleon Group founder. Ruiz was not.

“The passing of information at AMD to a hedge fund is an even clearer case of breach of fiduciary duty than IBM because the AMD executive is at the company doing the spinoff,” said Peter Henning, a legal ethics professor at Wayne State University Law School in Detroit who is a former senior attorney at the U.S. Securities and Exchange Commission and an ex-federal prosecutor. “I’m not sure why they haven’t pursued it.”

Other former prosecutors and SEC lawyers offered theories ranging from the need for more time to develop a case to the lack of any criminal intent on Ruiz’s part in leaking the data.

SEC Lawsuit

Yusill Scribner, a spokeswoman for U.S. Attorney Preet Bharara, who filed the charges, declined to comment as did Ruiz spokesman Jeremy Fielding of Finsbury Group and SEC spokesman Erik Hotmire. The agency sued Chiesi, Moffat and the four others the day they were charged, accusing them of securities fraud.

Federal investigators plan to charge at least 10 other securities professionals with insider trading, some linked to the criminal case against Rajaratnam, people familiar with the matter said earlier this month.

Prosecutors, if they plan to charge Ruiz, may not be in a hurry to do so, said Christopher Bebel, a former prosecutor and SEC lawyer now in private practice in Houston.

“They have a saying, ‘Indict in haste, repent at leisure,’” he said. “They have a lot to do. They have to subpoena bank records. Witnesses have to be interviewed.”

The government may have made a tactical decision to pursue lower-level defendants before any targeting of the AMD CEO, said Elizabeth Nowicki, a visiting securities-law professor at Boston University’s law school.

Traders First

“It makes sense to first go after the traders, to shut them down,” she said. “You want to stop them before they do more harm. It’s easy enough to circle back around and catch him later.”

Rajaratnam, Chiesi and Mark Kurland, a former principal at New Castle, were accused of trading on inside information. The complaint doesn’t allege Ruiz traded on his own information or was paid for the tips. That might make it harder to prove Ruiz intended to violate insider-trading laws, lawyers said.

Prosecutors would have to show he expected to benefit in some way, though lawyers said an expectation of goodwill or a return favor can be enough to support a conviction.

“To charge the AMD executive with insider trading, the government would have to show he knowingly passed on non-public material information, and in doing so breached his fiduciary duty to AMD,” said Michael Perino, a securities-law professor at St. John’s University in Queens, New York.

No Breach

It wouldn’t be a breach of fiduciary duty if the AMD executive had shared the information with someone for legitimate business purposes, expecting that person to keep it confidential, such as a business partner like Moffat whose company supplied AMD with technology, he said.

“It’s harder to claim he’s sharing information for business purposes if it’s a hedge fund,” Perino said, referring to Chiesi’s New Castle firm.

Ruiz might have passed the information to Chiesi as a friend with no expectation she would trade on it, Henning said, in which case there would be no fraud claim against him.

“It wouldn’t be insider trading because there would be no benefit to him -- though he may be reckless,” he said.

Short of being a crime or a securities violation, leaking the information might be a violation of Ruiz’s corporate duties to AMD. AMD might have grounds to sue Ruiz.

Ruiz, as the unidentified AMD executive, probably isn’t an informant or he would have been identified as such along with other government witnesses in the complaints, Henning said.

Other CEOs

Other CEOs implicated in insider trading rings have wound up being criminally charged or sued by the SEC. Samuel Waksal, the former chief executive of ImClone Systems Inc., was convicted in 2002 for securities fraud in connection with insider trading on company stock.

He spent five years in prison for tipping off friends and associates, including Martha Stewart, that regulators would probably reject one of the company’s new drugs. Stewart, then CEO of Martha Stewart Living Omnimedia Inc., was convicted of obstruction and lying to investigators in that case.

James McDermott, former chairman and CEO of brokerage Keefe Bruyette & Woods Inc., served five months in prison after being convicted in 2000 of leaking inside information about pending bank mergers to his porn-star mistress, Kathryn Gannon.

Bank of East Asia Ltd. Chairman and CEO David Li Kwok Po allegedly used his position as a Dow Jones & Co. board member to tip off three Hong Kong residents that News Corp. was about to bid for Dow Jones, which it did in May 2007. He settled an SEC lawsuit against him last year without admitting any wrongdoing and was ordered to pay an $8.1 million “civil penalty.”

Rajaratnam is accused of receiving tips in a $20 million scheme from a network of high-ranking corporate executives including co-defendants Rajiv Goel, who worked at Intel Capital, and Anil Kumar, who worked as a director at McKinsey & Co. All have denied any wrongdoing.

The cases are U.S. v. Rajaratnam, 09-02306, and U.S. v. Chiesi, 09-02307, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net.

Last Updated: October 30, 2009 13:13 EDT