In great anger - or: Complaint regarding the insider trading of Sun stock
Since i’ve read through this document i’m in deep anger. This document was published by the Register in their article “Feds’ insider trading wiretap snares IBM heir apparent”. It’s the the complaint that led to the accusation and arrest of Robert Moffat and Danielle Chiesi. I assume that court documents are public domain, thus i’m citing large parts out of it now. To introduce the characters:
c.) At all times relevant to this Complaint, ROBERT MOFFAT, the defendant, was employed by International Business Machines Corp. ("IBM"), a public company whose stock traded on the NYSE under the symbol "IBM." In or about July 2008, MOFFAT was named Senior Vice President and Group Executive in IBM's Systems and Technology Group.
a) At certain times relevant to this Complaint, DANIELLE CHIESI, the defendant, worked for New Castle. In or about 2008, New Castle was the equity hedge fund group of Bear Stearns Assed Management Inc. ("BSAM") and has had assets under management of approximately $1 billion.
The part about Sun begins on page 25. For people like me that aren’t fluent in the nomenclature of the american law system: A CW is a cooperating witness.
Insider Trading in the Securities of Sun 31. I believe that in addition to conspiring to engage in insider trading with the respect to AMD and IBM, as is described above, DANIELLE CHIESI and ROBERT MOFFAT, the defendants, have also conspired to engage in insider trading in the securities of Sun. The basis for this belief is a review of certain wire communications intercepted of the CW-1 Cell Phone, documents publicly available over the Internet, phone calls between CHIESI and CW-2 that where consensually recorded by CW-2, phone records provided by certain telecommunications companies, account statements provider by New Castles's prime broker, and information obtained from the SEC, wich information includes the following a) On or about December 19, 2008, in connection with discussions on the subject of a potential business combination, IBM and Sun entered into a confidentiality agreement. b) On or about January 19, 2009, IBM conducted due diligence on Sun in Dallas, Texas. MOFFAT was among nine executives who attended the due diligence on behalf of IBM b) On or about Saturday, January 24, 2009, at approximately 12:37 p.m. a call was placed from a telephone number used by MOFFAT, the defendant, to Chiesi Landline A. The call lasted approximately 15 minutes. b) Immediately following this call, CHIESI received a phone call on Chiesi Landline A from a number subscribed to New Castle Funds LLC. The call lasted approximately 29 minutes. c) On or about Monday, January 26, 2009, certain accounts affiliated with New Castle purchased approximately 283,600 shares of Sun at a price of approximately $3.80 per share. d) On or about January 26, 2009, CHIESI called CW-1 on the CW-1 Cell Phone. (The call took place before CW-1 was approached by the Government and began to cooperate with the Government's investigation.) CHIESI said "JAVA," and indicated that "they print tomorrow." Based on my experience, I believe that CHIESI meant that Sun, which trades under the symbol "JAVA," was going to be announcing its quarterly earnings on the following day. CW-1 replied that he had heard that it was "horrible." CHIESI said, "My IBM guy said that he thinks they're gonna beat the quarter." Referring to her "guy" at IBM, CHIESI said that "he said 'by the way, I think JAVA beat the top, beat the bottom, Sun did....' The only way he would know is 'cuz they're doing the due diligence on them." Based on my training and experience, I believe that CHIESI meant that Sun would announce that the company's quarterly revenue ("the top") and its earnings pre share ("the bottom") exceeded analysts' expectations. Later, CHIESI said, "The only way ... he would know is because I know they were doing due diligence." Later, CHIESI said, "IBM is looking at it as a takeover." She added "The only reason my guy would know that is because it's his deal. Like, he's in bed with them." CW-1, replied, "I see, I see. Ok." CHIESI continued, "You see that I mean... not because he's just speculating." (Based on public news reports, I know that on or about March 18,2009, it was reported that IBM was in talks to acquire Sun.) e) Approximately 30 minutes later, CHIESI called CW-1 on the CW-1 Cell Phone. Chiesi said, "IBM is telling me... [Sun is] gonna do fine." CHIESI told CW-1 that the "top" would be "3.2," meaning that Sun's quarterly revenue would be $3.2 billion. CHIESI said that Sun would also take restructuring charges. CHIESI said, "let's just get involved with this at the same time. There's plenty of money to make." f. On or about Tuesday, January 27, 2009, certain accounts affiliated with New Castle purchased approximately 784,900 shares of Sun at prices ranging from approximately $3.97 to $4.28 per share. g. On January 27, 2009 after the close of the market, Sun announced its quarterly earnings for the quarter ending in December 2008. Sun announced that its revenue for the quarter was $3.22 billion, exceeding analysts' expectation of $3.16 billion. Sun also announced that it was taking restructuring charges. On the following day, shares of Sun opened at $4.32, up approximately eight percent ($0.33) over the previous day's close. h. Between January 28, 2009 and February 9, 2009 certain accounts affiliated with New Castle sold approximately 949,9000 shares of JAVA at prices ranging from approximately $4.73 to $5.72 per share, realizing a profit on those shares sold during this time period of more than $900.000. i. On or about April 20, 2009, CW-2 called CHIESI and consensually recorded the call. Before discussing IBM's quarterly earnings announcement, as is described above in paragraph 30(m), CW-2 and CHIESI first discussed Sun. Based on public news reports and information publicly-available over the Internet, I know that between March 18, 2009 (when it was reported that IBM might acquire Sun) and April 19, 2009, Sun stock had decreased in value due, in part, to reports indicating that IBM's deal to acquire Sun might fall through. On or about April 20, 2009, Oracle stepped in an announced its intention to acquire Sun at a price of approximately $9.50 per share, a premium of approximately 42 percent (approximately $2.81) over Sun's closing price on April 17,2009 ($6.69). During the call, CHIESI told CW-2 that she got her "ass kicked" in JAVA. CHIESI told CW-2 that she was short. CHIESI said that MOFFAT had told her that Sun's revenue would be down "27 percent" when Sun printed, and that the "street's down 17." CHIESI said that she thought that she would get a "heads up" if IBM was going to buy it."
Typos are mine, the repeat of letters in the structuring were in the original document. I think this document sheds some interesting light on the disclosure of the talks between IBM and Sun, too. I would like to see the court not only checking the accusations, but looking into the role of Mr. Moffat, Mrs. Chiesi and et al in this breach of confidentiality and trust that did lead to a massive surge in stock price on and around March 18 and into a massive uncertainty in the customer base of Sun. I really hate such behaviour. I’m in really deep anger. I’m really sad. Giving up basic principles of doing business just for a few bucks - or whatever he got for this - isn’t acceptable by a really wide margin. I hope a possible conviction will make clear that all we have in business is trust in a good conduct in business and on confidentiality on all involved sides. PS: I’ve deleted the first version of this text, because it needed a tone down of all the anger i’ve put in my article. At least i understand some developments of this year, as certain components where unexplainable for me. But now they look to make sense.