Okay, this looks like a big one. The FBI and other US enforcement agencies on Friday moved against an alleged insider dealing ring stretching from Wall Street to Silicon Valley, by way of Bear Stearns, IBM and even a Moody’s analyst.

The court documents are here in the Long Room.  But running through the details quickly…

Mark Kurland and Danielle Chiesi worked for an entity called New Castle Partners, a $1bn equity hedge fund that sat within Bear Stearns Asset Management.  Chiesi was allegedly getting information from one Robert Moffat, who was a senior vice president at IBM.

Their main focus was Advanced Micro Devices, the chip maker, and Akamai, a web application firm.

They are now facing charges after an FBI wire-tapping operation that included flipping at least two alleged insiders, described in court documents as CW-1 and CW-II – these rats cooperating witnesses agreed to hold rigged conversations with various of the accused over tapped lines.

Chiesi is said to have garnered confidential information from unnamed sources at both Akamai and AMD, while she also got inside information on AMD, IBM and Sun Microsystems from Moffat.  She then shared the information with Kurland, and together the two proceeded to trade on it.

Chiesi also shared her info with Raj Rajaratnam, founder of the Galleon hedge fund in Manhattan, whose personal wealth has been put at $1.3bn by Forbes.

Rajaratnam, in turn, is said to have shared what he had on AMD and other companies with the Bear Stearns people. But with Rajaratnam’s phone also tapped by the FBI, a number of his direct associates have also been swept up in the investigation.

The AMD-related trading was linked to AMD’s decision back in June 2008 to start discussions with certain Abu Dhabi-based investors  over spinning out its manufacturing business. People at IBM knew about this because AMD needed certain permissions from IBM concerning technology licences.

Here’s a couple of random selections from the transcripts:

Chiesi:  “You just gotta trust me on this. Here’s how scared I am about what I’m gonna tell you on AMD…September…I swear to you in front of God…You put me in jail if you talk…I’m dead if this leaks. I really am…and my career is over. I’ll be like Martha Fucking Stewart…”

Rajaratnam: “I think you should buy and sell, and buy and sell…On Akamai or IBM, anything, be radio silent. Like, you know, I get shit on lots of companies…”

One point to note here is that this group appear to have been trading away merrily while the whole financial system was going into what looked like a death spiral. Indeed, their alleged profits were severely constrained by the wider market plunge during September and October last year.

It may prove to be the case, however, that they were subsequently caught through their trading in Sun Microsystems around April this year, when CW-I and CW-II were staging monitored calls with the accused.

Meanwhile,  Rajaratnam at Galleon has found himself facing charges relating to his trading in Google, Hilton Hotels, broadband group Clearwire Corp,  and Polycom, a video conferencing specialist.

Allegedly snared in this side of the case are Rajiv Goel, who was a director of strategic investments at Intel Capital, the investment arm of chip maker Intel, and also Anil Kumar, a director at management consultants McKinsey.

With the help of another rat cooperative witness, the FBI raised questions over Galleon dealings going back to January 2006. Goel, meanwhile, used a brokerage account at Charles Schwab.

The Moody’s angle concerns Hilton Hotels.  In early July 2007, a Hilton executive told an unnamed Moody’s analyst that the hotels group would be taken over by Blackstone. The Moody’s analyst then tipped off someone who is acting as one of the FBI’s witnesses who then, in turn, allegedly informed Rajaratnam.

This co-operative witness then allegedly paid the Moody’s analyst $10,000 for the Hilton info.

Next to be snared in all this was Market Street, an investor relations firm which worked for Google. The FBI’s witness claims he/she was tipped off about Google missing analyst forecasts in the summer of 2007 – information that was allegedly passed on to Rajaratnam.

Similar dealings, garnered from wire taps and flipped witnesses are detailed in the court documents, copies of which are available here.

But one other thing worth noting:  the US authorities seem to have moved now because they thought Rajaratnam was about to flee the country.  Monitoring by the FBI indicated he thought a former employee of Galleon might be wearing a wire .

Then, on Thursday, it emerged that a plane ticket from New York to London in Rajaratnam’s name  had been purchased for travel today…

Related links:
Galleon founder charged with insider trading – FT
Galleon’s Rajaratnam Charged in Insider Trading Scam – Bloomberg
Camo-Loving Raj Rajaratnam Sold Out By Ex-Employees? – Dealbreaker
Raj Rajaratnam, Founder of $3 Billion Galleon Group Hedge Fund, Arrested – Clusterstock

This entry was posted by Paul Murphy on Friday, October 16th, 2009 at 18:19 and is filed under Capital markets, Hedge funds, People. Tagged with bear stearns, FBI, Galleon, ibm, mckinsey, moody's, Raj rajaratnam. Edit this entry.