IBM's Moffat, Chiesi Were `Intimate,' U.S. Says

Robert Moffat, the former International Business Machines Corp. executive who pleaded guilty in the Galleon Group LLC insider-trading scheme, had an “intimate relationship” with accused tipster Danielle Chiesi, prosecutors said in court.

Moffat admitted to securities fraud and conspiracy in March and is scheduled to be sentenced in July. He faces six months in prison at most. Today at the sentencing of Mark Kurland, a co- founder of New Castle Funds LLC and Chiesi’s former boss, a defense lawyer said Kurland deserved no more prison time than Moffat.

In response, Assistant U.S. Attorney Reed Brodsky told U.S. District Judge Victor Marrero in Manhattan that Kurland was motivated by greed while Moffat had an “intimate relationship” with Chiesi. Brodsky didn’t elaborate, saying he hadn’t intended to discuss Moffat’s case until Kurland’s lawyer, Patrick Smith, began focusing on it.

Kurland, who was sentenced today to 27 months in prison, and Moffat are among 21 people charged since October in two waves of insider-trading arrests. Among them are Galleon co- founder Raj Rajaratnam, who is charged with using confidential tips to earn millions of dollars on illegal stock trades, and Chiesi, whom Kurland supervised at New York-based New Castle. Both Chiesi and Rajaratnam deny wrongdoing.

Photographer: Peter Foley/Bloomberg

Robert Moffat, a former senior vice president at International Business Machines Corp. (IBM), leaves federal court in New York. Close

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Photographer: Peter Foley/Bloomberg

Robert Moffat, a former senior vice president at International Business Machines Corp. (IBM), leaves federal court in New York.

Moffat, who also isn’t cooperating with prosecutors, will seek a sentence of probation, said his lawyer, Kerry Lawrence.

‘Least Culpable’

“Mr. Moffat is the least culpable person charged in connection with the entire case, and the government agreed today that he was less culpable than Mr. Kurland,” Lawrence said in a phone interview.

Chiesi’s lawyer, Alan Cohen, declined to comment after court today.

A former 31-year IBM veteran, Moffat admitted in court in March that in 2008 he leaked information to Chiesi about IBM, Lenovo Group Ltd. and Advanced Micro Devices Inc. He said he told Chiesi about disappointing sales of IBM servers, a pending restructuring at AMD and earnings at Lenovo.

Moffat said he learned the information because he served as a non-voting member of Lenovo’s board and because he knew that IBM had been asked by AMD to use a license as part of its restructuring.

Moffat received “no money or other financial benefit” from trades based on inside information, Lawrence said in court when his client pleaded guilty.

IBM’s Top Five

Kurland, 61, pleaded guilty in January for his role in the scheme. At his sentencing, Smith argued to Marrero that Moffat was more culpable than Kurland. Smith said Moffat, whom he called one of the top five executives at IBM, leaked confidential information while Kurland only traded on tips that originated with Moffat and passed through Chiesi.

Photographer: Daniel Acker/Bloomberg

Danielle Chiesi, a New Castle Funds LLC consultant, exits federal court following a court conference in New York. Close

Danielle Chiesi, a New Castle Funds LLC consultant, exits federal court following a... Read More

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Photographer: Daniel Acker/Bloomberg

Danielle Chiesi, a New Castle Funds LLC consultant, exits federal court following a court conference in New York.

“The crime started with Robert Moffat,” Smith said.

Brodsky told the judge that prosecutors will ask that Moffat be sentenced to six months in prison. Under federal sentencing guidelines, he may also be eligible for a sentence of probation.

At IBM, the world’s largest computer-services company, Moffat oversaw the personal-computer business and helped sell that unit. Before his arrest, he was among the candidates to succeed Sam Palmisano as chief executive officer, according to people familiar with IBM’s thinking.

The case is U.S. v. Kurland, 10-cr-69, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in federal court in New York at dglovin@bloomberg.net.

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