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Did a Crooked IBM Exec Derail Sun Aquisition?

10.19.2009
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Should the recent insider trading arrest of an IBM senior VP put the whole Sun acquisition saga under new scrutiny?  Robert W. Moffat, who was a primary negotiator in the merger talks with Sun late last year, had access to Sun's nonpublic financial information and allegedly shared it with Danielle Chiesi, an employee at the New Castle Partners hedge fund.  

Maureen O'Gara of "Client-Server News" reports, "Armed with the foreknowledge allegedly provided by Moffat that Sun was going to beat the Street – top and bottom – when it reported its December ’08 quarter, New Castle bought Sun shares just hours before Sun posted its numbers on January 27 and made a $900,000 killing on the deal."

In a wire-tapped call, Chiesi talked about her inside source: "IBM is looking at it [the Sun merger] as a takeover. The only reason my guy would know that is because it’s his deal.  Like, he’s in bed with them….You see what I mean…not because he’s just speculating."  

In another call Chiesi was frightened about the consequences of her alleged actions: "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 [expletive deleted] Stewart."  IBM had been negotiating for two months with Sun before the news finally leaked, which gave Moffat ample time to leverage the financial information before Sun's stock shot up with news of a possible merger. Subsequently, we see IBM withdraw the offer for Sun, and we see Oracle surprise everyone by acquiring Sun.

So, with the evidence tying Moffat to illegal actions related to the Sun deal, should further questions be raised about the role Moffat played in the failure of IBM's acquisition plans?

If the wire-tap recordings are accurate and Moffat was bold enough to engage in high-stakes insider trading, is it really such a stretch to imagine he might manipulate the merger deal for his own ends?  Even if this crooked IBM exec's actions merely cast doubt on the merger, then might he have had more influence on the future of Java than we yet realize?

Further, what about the role of tech billionaire, Raj Rajaratnam? Who else did he have on his payroll? Is this just "standard operating procedure" for tech billionaires these days? Would Larry Ellison be about to own Sun and its Java technology if these guys hadn't been cheating the system?

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Comments

Rick Ross replied on Mon, 2009/10/19 - 5:36pm

If the Federal wiretap evidence has this guy, Moffat, on tape giving up insider secrets to the woman from Rajaratnam's fund, then it also seems reasonable to me to wonder what they DIDN"T catch on tape?

The way I see it, even if Moffat only steered the situation a little bit, it might have made a big difference in whether IBM was willing to meet Sun's negotiating demands. If that was just enough to put the deal on ice, then it may well have set the stage for Oracle to swoop in and make a deal while IBM thought they had Sun on the ropes.

I really wouldn't be surprised, and I hope this gets further investigation.

Wong Qil replied on Wed, 2009/10/21 - 7:33am

Business is always ugly, what ever guys involved succeed or not.

William Houghtaling replied on Mon, 2011/07/04 - 8:20am

We can't judge them so much that it would be hard to understand. Businessman has reasons why they do this kind of stuff especially when they see an opportunity to make more money. If the IBM was willing to meet Sun's negotiating demands then we would have a new Java technology on our hands.  Gauthier, Houghtaling and Williams

Carla Brian replied on Mon, 2012/07/09 - 5:49pm

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