IBM Corp. (NYSE:IBM) executive Robert Moffat's alleged role in the Galleon Group insider trading scandal has shocked former colleagues and acquaintances. This
Bloomberg article quotes a few of them and also offers a profile of the long-time IBMer.
What jumped out at us was a comment from Kaufman Bros. LP tech analyst Shaw Wu. According to Wu, Moffat is a "company man, very careful with his answers. He knows where the line is."
Wu is referring to the line that distinguishes insider trading from other information about a company's strategy or performance. It's crossed when material, nonpublic information is disclosed. And Eric Fisher (pictured), a partner with Butzel Long, says most public company executives would be hard-pressed to argue they don't know the difference.
"As difficult as it can be to discern, [the line] is there, and I think many people who come into possession of this information know where it is and need to be careful not to cross it. If you're a corporate executive and you tell me over lunch that it's
been a rough quarter and work has been really slow, that's not
material, non-public information. If you tell me you're going to miss
your quarterly estimate by $.5 per share, that is."
According to the court documents filed in the Galleon case, Moffat disclosed nonpublic information to Danielle Chiesi, a consultant with hedge fund New Castle Partners, with whom he allegedly had dinner and whose job it is to gather information to help inform her employer's investment decisions.
While a dinner between a senior executive with access to proprietary information and a hedge fund employee might raise eyebrows, "you can't bar social interaction," says Fisher, who previously was a an assistant U.S. attorney in the Southern District of New York,
where the charges against Moffat and others in the Galleon case were
filed. "But when you get to the upper echelons of your company, you have to be very mindful of that line."
Moffat's attorney has said his client did not "disclose any information that would lead to him having criminal liability." From what Fisher and others have said, claiming Moffat didn't understand the information he disclosed about Advanced Micro Devices Inc., Sun Microsystems Inc. and IBM amounted to insider trading may be a tough sale. -
Suzanne Stevens
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Bob Moffat knew where the line was - he reminded his employees all the time!