Former AMD CEO Hector Ruiz Implicated in Insider Trading Scheme

Hector Ruiz served as CEO of AMD for nearly a decade and guided the company through both its strong success (Athlon 64) and lurching failures (paying $5.8 billion for ATI). He stepped down as CEO in July of 2008, after AMD reported its seventh consecutive quarterly loss, but became chairman of GlobalFoundries. That position could now be in jeopardy. The Assistant United States attorneys for the Southern District of New York have filed a complaint against the hedge fund Galleon Management. The fund is accused of trading on insider information, and Hector may have provided a great deal of it just before the GlobalFoundries spinoff.

According to the court filing, Daniel Chiesi of Galleon Management had several long conversations with Ruiz regarding the upcoming spinoff. Ruiz claimed the divestment would substantially reduce AMD's debt load and improve its competitive position. On the basis of this information, Galleon Management bought 199,400 shares of AMD on August 15, 2008, and a further 127,600 shares on September 30. AMD formally announced the spinoff on October 7, 2008. The formal court filing includes quotes from conversations between Danielle Chiesi and Raj Rajaratnam, controller of the hedge fund. As early as June, 2008, Chiesi was meeting with an unnamed AMD executive and reporting the details on AMD's negotiations with IBM (IBM had to agree to license its technology to GlobalFoundries in order for the spinoff to proceed.) In one conversation, Rajaratnam asks if the unnamed executive will provide Chiesi with "the full low down," to which Chiesi replies "Oh yeah. Plus, IBM will too."

Further details in the brief (available here) indicate that Chiesi met with the unnamed executive and Robert Moffat of IBM multiple times, and was aware of the specific details of the spinoff by August 15. Yesterday, the Wall Street Journal announced that Hector Ruiz was the unnamed AMD executive, a fact that, if true, implicates him as an inside trader. Ironically, it might not matter. In an odd twist of fate, Galleon's inside trading appears to have benefited no one. The expected jump in AMD's stock price never appeared, The stock rose slightly in early October, from $5.31 a share to $6.25 on October 14, but closed yesterday at $4.85 (currently trading at $4.97). Furthermore, there's no evidence that the unnamed AMD executive, whoever he or she was, was ever compensated for the information.

Ruiz has not yet been accused of criminal misconduct or named as a person of interest in the investigation, If he is, it could jeopardize his position at GlobalFoundries, and possibly trigger an in-depth investigation of both AMD and GF. That's a distraction neither company needs at the moment—it would be best for all concerned for Ruiz to walk away with his hands clean on this one.