Friday, April 9, 2010

The Galleon Case Revisited

It’s been nearly six months since the first six defendants were charged in the Galleon insider trading scandal and six months before the last of those six defendants, Bob Moffat (formerly of IBM), entered a plea.

When I posted my first article on this topic titled When a Senior Leader is Charged With a Crime, I was both dismayed and outraged that something like this could happen in the IBM family. When I posted the news that Moffat had entered a guilty plea, this forum received a record number of hits. The consensus of the readers here (based on comments and on forums) is that justice is being served, but also that this is a sad situation for IBM and the IBM family.

Moffat has admitted he was wrong, and according to statements by his lawyer Kerry Lawrence, Moffat is “deeply sorry for the embarrassment his conduct has caused to his family and to his former employer, IBM”.

So now what happens?

Of the original six defendants, only Raj Rajaratnam (the alleged ringleader and Galleon founder) and Danielle Chiesi (New Castle consultant who allegedly passed on tips from other defendants) are pleading “not guilty”. Their criminal trial will begin in October.

Four defendants are cooperating with the prosecution, including Rajiv Goel and Anil Kumar (two of the original six arrested). Mark Kurland and Bob Moffat have entered guilty pleas but are not cooperating with the prosecution.

Sentencing for Moffat is scheduled for July 26th. According to his plea agreement, he will face up to six months in prison. Other defendants will be sentenced between April and July. All of the defendants are currently released on bail.

There are some key issues to be resolved before the criminal trial begins. Wiretaps were used to obtain key evidence – the defense is arguing this evidence should be thrown out because the government did not follow the requirements of the Wiretap Act in obtaining authorization to record the telephone conversations. A hearing on that issue is scheduled for mid-June. Also, Rajaratnam and Chiesi have asked that their cases be heard separately.

There is a related civil case, which has been delayed until February 2011, to give the lawyers enough time to prepare following an anticipated decision in July on whether the wiretap evidence will be allowed in the civil trial. While the criminal trial may result in some defendants going to jail, the civil trial is where the court will rule on returning monies that were obtained illegally.

More details can be found in this summary from NY Times Dealbook.

The big remaining question is “why?”

It doesn’t appear that greed was the motive in Moffat’s case. From what we know of the charges, he did not profit financially from any of the trading based on the information he provided. It has also been suggested that perhaps Moffat had a more-than-professional relationship with Danielle Chiesi. Indeed, she was the link between him and Rajaratnam.

We may never know the details, but I think it’s possible that the motivation behind this was neither money nor sex. I think it’s very possible that Moffat may have simply gotten carried away with the need for power and prestige – that being a Senior VP at IBM and a contender for the CEO job was simply not enough for him.

What do you think?


Anonymous said...

Arrogance? A little "strutting" for Danielle?
The betrayal of the ethical standards held by his company by a person in his position is overwhelming. His "loyalists" must have been overcome.

Colette said...

Stevepokbd, I think most of the folks here agree with you on his betrayal of ethical standards.

Anonymous said...

Mr Moffat, like the rest of IBM's employees, annually signed "business conduct guidelines" which he clearly severed when he shared info with Ms Chiesi. There is no doubt in my mind that he knew what he was doing was wrong. He routinely warned his underlings about not sharing quarter-end results, even with with IBMers who did not (and should not) have access to that information.

I would guess that his relationship with Ms Chiesi was not just a platonic friendship. However, that doesn't mean he did this for sex. I think he clearly did this as a way of strutting to show how powerful and important he was at IBM - I've heard him numerous times brag about being privy (as a result of his high position in the company) to the most confidential information. The man has an ego that can fill the prison where he'll spend his 6 months.

Anonymous said...

Greed, arrogance, cash, sex, feed the ego, who cares. This is a guy who had no problem laying off thousands and violating IBM COE's (conditions of employment). IBM should investigate when these violations of COE took place and sue him for all earnings, bonuses etc he received after the date of the first violation. If this date of violation predated the date he was eligible for retirement revoke that as well. If it is not apparent, I have no compassion for this low life.

Colette said...

Anonymous - thanks for bringing up the Business Conduct Guidelines. You are absolutely right - he surely broke many of those rules.

Lou Shadow's Executive Assistant said...

Bob Moffatt is a tragic case, but one for which no pity should be doled out or a tear shed for in sadness. He clearly made the bed he will lie in as a very public executive and heartless of a corporation that has always considered its brand and finances more valuable than any human life associated with it. IBM should stand for "Immoral Brand and Management".

I met Bob several times during the course of his time at the Blue Pig and watched his star be formed then rise in the bureaucracy, ready to be used for the objective of the moment, as long as his ego was stroked.

IBM, a key part of IBM's historic success is the classification and psychological manipulation of its people. I personally believe this because I was there for almost 37 years and I actually manipulated people as well as was manipulated myself.

There are essentially two types of people in IBM. There are those who are morally strong and righteous, and then those who have a price for which they will do anything, including cleansing their conscience. From the first day you join the firm, you are evaluated to see if you have the capability of being manipulated and if there is corporate value in manipulating you. If not, you are "stabilized" from a career perspective. If you are a good candidate then it's the fast track to manipulation.

Some can't be manipulated, so they are fed the story of the BCG, the alleged morality of the business, the "professional" bit, the whole IBM is a moral company spiel. In the old days, these would go to their graves believing this and work themselves to death.

For those that can be manipulated, the bribe can be money, power or status. Although many fall prey to money, it is power, status and arrogance that is usually the prevalent controller at the top. Just like for successful political leaders, it is intoxicating to have helpers do all your mundane tasks, laugh at your jokes and constantly be ingratiating you. The disease of arrogance and power slowly creeps up on you and you genuinely believe you are invincible. You also see the value of lying and misleading others as you become a powerful public figure in the company which happens usually at around the GM level.

Bob was a good boy of good modest NY roots. He became intoxicated then consumed by not money or sex, but by arrogance, power and the need to be viewed as a superior being when he really wasn't but an average guy. A more arrogant and controlling executive team enabled him to achieve this illusion of grandeur to manipulate him so that they could achieve their own objectives.

I remember clearly the day when he told me that if I wanted loyalty I should look for that in my dog, not in IBM. He added that IBM was full of poor, misled and expensive employees, ready for the plucking. That day in Austin I knew that something like this was going to happen. It was an unstoppable disaster in the making.

I pray that this wretched affair helps him reconcile his damaged soul.

Colette said...

Lou Shadow's EA - thanks for your comments. I think you and I worked for a very different company - I never felt like I was manipulated.

Your comment about Moffat suggesting you find loyalty in your dog is very enlightening. It's very sad.

Anonymous said...

Great site. A lot of useful information here. I’m sending it to some friends!

Colette said...

Anonymous, glad you found me! I love new visitors!

Anonymous said...

Finally, an issue that I am passionate about. I have looked for information of this caliber for the last several hours. Your site is greatly appreciated.