You could go to a lot of conferences on best practices in corporate development in recent years without hearing much about how to stay out of trouble with the Securities and Exchange Commission. That may change given that a couple of corporate executives involved in deals were among those charged by the SEC on Friday in connection with a major insider-trading case.
At the
center of the case is Raj Rajaratnam, co-founder of the tech-focused hedge fund Galleon Group. According to prosecutors his hunger for stock-moving information was satisfied by a network that included Rajiv Goel, a director in strategic investments at Intel Corp.'s (NASDAQ:INTC) Intel Capital unit, and Robert Moffat, a senior vice president at IBM Corp. (NYSE:IBM). Anil Kumar, a director at McKinsey & Co., was also among those charged.
All those charged say they are innocent. And there's sometimes a fine line between inside information and the fruits of energetic research. Some of the information IBM's Moffat is accused of passing along to Danielle Chiesi, an employee of a hedge fund called New Castle Partners, had to do with the outlook for IBM's quarterly earnings. Was this acceptable background--after all, so-called whisper numbers are routinely cited on CNBC--or something more?
Less ambiguous, though, are the charges relating to M&A activity. Moffat, head of IBM's systems and technology group and one of the company's top executives, is also
charged with passing along information about earnings prospects for Sun Microsystems Inc., gleaned during due diligence when IBM was exploring a deal that was eventually snatched away by Oracle Corp. (NASDAQ:ORCL).
Accusations against Intel's Goel include the charge that he
tipped off Rajaratnam about a pending joint venture with wireless broadband provider Clearwire Corp. (NASDAQ:CLWR), where Intel is a major investor.
The charges remain to be proven. But the fact that they've been made against executives filling different roles at two major companies is a sharp reminder to corporate boards, senior managers, and corp dev teams. More than a few people at these big, deal-intensive companies possess potentially market moving information. And more than a few people in the investment world have an intense desire to get access to such information.-
Kenneth Klee
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