Greed-to-Grief, No. 6

Robert Moffat grew up in a home of modest means and became an Eagle Scout, a distinction that only 5% of boy scouts ever achieve. He was a middle-distance runner on his college track team and developed a reputation for being smart and incredibly hard-working.

These character traits drove him up the corporate ladder at IBM until he was one of the most senior executives in the company. If there ever was a company man, Moffat was it.

Danielle Chesni was a teenage beauty queen who used her form-fitting business suits, charm, and persuasiveness to gather information as a hedge fund trader to give the funds the edge needed to make risky trades of stocks.

Father of four and devoted family man Moffat met Chesni at an investor conference and began sharing sensitive information with her regarding IBMs’ earnings and pending acquisitions. As things progressed, Moffat and Chesni initiated an intimate relationship.

Chesni directed trades to among other firms, the infamous Galleon Group, which was run by billionaire and now ex-convict Raj Rajaratnam. To see our coverage of the Galleon scandal, click here.

Millions were made from the information shared by the former Eagle Scout, but Moffat himself made no money from the trades. Then how did Moffat wind up with a six-month prison sentence and forfeiture of $65 million of stock-option and pension benefits from IBM?

The Supreme Court has established that this can include situations where information is shared in exchange for any personal benefit, not just monetary gain.

Moffat wasn't directly paid cash for the IBM information he provided to Chesni, but he was still convicted because he passed along material nonpublic information and received personal benefit from doing so.

I have studied many insider trading scandals and this is the first that had the trade-information-for-sex angle, even if Moffat did not realize what he was doing at the time constituted the receipt of a benefit (sex) for the exchange of inside information.

Chesni was a professional information-gatherer and hedge-fund trader while Moffat was an over-worked senior corporate executive. Kudos to Chesni for picking a good target.

There were no emails, Chesni was too smart for that, but there was my favorite way the bad guys get caught: FBI wiretaps on the phones. Ouch.

So, while Chesni was bragging to her hedge fund managers about landing Moffat as the whale of information sources, the FBI was patiently listening in and spreading the net wider with each call until Moffat was trapped like an insect in a spider web.

For her crimes with Moffat and others, Chesni wound up with a prison sentence of 30 months and ordered to pay restitution of about $500,000.

The Path from Greed-to-Grief

Moffat was greedy, but he was greedy for success. Success with his career and success with his family, which included his wife who suffered from Multiple Sclerosis. He was diligent corporate climber who was headed to the top of one of the most important technology companies in the world.

Moffat was not like some of the dirtbag scammers we have discussed in previous newsletters. By all accounts, he was a good guy until he crossed the line with Chesni later in life.

His problem? He was human. And humans are fallible creatures. He caved in to the manipulative Chesni, who the record shows, was good at this sort of thing.

 Key Takeaways

• Be skeptical (paranoid?) of people’s motives, especially if they are nice to you.

• Understand that as you become an executive with more and more responsibility, you have more and more knowledge about sensitive matters. It is tempting to show off about the secrets you keep. But there are consequences.

• There’s a reason you never talk about anything important in an elevator: even if the people around are not listening, the FBI might be.

Things I think about

About 1 in 600 high school baseball players make it to the roster of a Major League Baseball team.

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