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Ex-contender for top IBM job pleads guilty on securities charges

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The former senior IBM executive once considered a successor to chief Sam Palmisano and caught in an insider trading sting has pleaded guilty to two of the charges brought against him in court in New York.

The insider trading scheme revolves around Raj Rajaratnam, the founder and managing director of Galleon Management, formerly a $7bn New York hedge fund that was unwound last year in the wake of the scandal, and Danielle Chiesi, an employee at New Castle Funds, formerly the equity hedge fund group of Bear Stearns.

Both have been charged with trading on insider information on a number of tech deals, getting nearly $50m in illegal profits relating to Google, Polycom, AMD, Clearwire, Akamai Technologies and other companies.

In the complaint filed last October, senior vice president and general manager for IBM's systems and technology group Robert Moffat was accused of giving Chiesi, a friend, private information about AMD's spinoff of its chip making business to ATIC, IBM's quarterly earnings, and Sun Microsystems' quarterly earnings during the time when Big Blue was working to acquire Sun.

Moffat was arrested and charged with Rajaratnam, Chiesi, and three others with participating in insider trading that netted more than $20m in profits.

Two weeks later, Moffat stepped down from IBM, and over the next several weeks the US Attorney's Office expanded the case with 21 people being charged in interlocking rings of insiders and nearly $50m in ill gotten gains. In December, Moffat's lawyer, Kerry Lawrence, denied the charges leveled by the Securities and Exchange Commission (SEC) and the US Attorneys Office of insider trading, adding that Moffat did not say anything that was "material non-public information."

In the US District Court for the Southern District of New York on Monday, though, Moffat and Lawrence pleaded guilty to one count of conspiracy to commit securities fraud relating to information regarding the businesses of IBM, AMD, and Lenovo, which bought IBM's former PC unit and that had Moffat still on its board. Moffat also pleaded guilty to securities fraud relating to trades done by Chiesi in AMD stock.

This first charge carries a maximum five year jail term, while the latter charge has a maximum of 20 years. In consideration of Moffat's guilty plea the government is dropping insider trading charges relating to Sun, AMD, Lenovo, and IBM. The speculation is that Moffat might face six months in prison when all is said and done, and will not face any financial repercussions because he did not engaged in trading himself.

Thus far, 11 defendants relating to the Galleon insider trading scam have pled guilty and eight have become cooperating witnesses. Moffat is not cooperating with the government's investigation, apparently, but was obviously shown some leniency for some reason - no doubt to get a guilty plea in the first place, thus building a better case against Rajaratnam and Chiesi.

The fall from grace was no doubt a disappointment for both Moffat and IBM, who Moffat was tipped to run after president, chief executive officer and chairman Palmisano retires perhaps next year. ®

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