Manhattan U.S. Attorney Brings Insider Trading Charges (Updated)
The U.S. Department of Justice has issued a press release. Quoting from the press release, the U.S. Attorney and FBI "...announced charges against six individuals arising out of their alleged involvement in the largest hedge fund insider trading case in history." The defendants include Raj Rajaratnam (Managing Member, Galleon Management), Danielle Chiesi (employee, New Castle Funds), Mark Kurland (executive at New Castle), Rajiv Goel (executive at Intel), Anil Kumar (director at McKinsey & Company), and Robert Moffat (Senior Vice President and Group Executive at IBM).
Unsurprisingly there are numerous press reports on the charges, but none of the individuals' employers are commenting. According to Mr. Moffat's official IBM biography, he "...is senior vice president and group executive, IBM Systems and Technology Group. Named to this position in July 2008, Mr. Moffat is responsible for all IBM hardware offerings as well as the microelectronics division, which translates IBM research and development into semiconductor solutions for IBM systems and OEM clients. In addition, the company’s integrated supply chain operations, which include global manufacturing, procurement and customer fulfillment, report to him."
Quoting again from the Department of Justice's press release: "The charges contained in the Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty."
Update #1: An Intel spokesperson says that Mr. Goel has been put on administrative leave pending the company's own investigation into the matter. "'Intel was not aware of this case and was not contacted by authorities,' [Intel spokesperson Chuck] Mulloy said, adding that Intel executives found out about the complaint Oct. 16. 'But if contacted by authorities, Intel will cooperate.'"
According to the Wall Street Journal's Law Blog, Mr. Moffat's attorney is Kerry A. Lawrence of Briccetti, Calhoun & Lawrence. He says his client was "shocked," and that "we look forward to a favorable resolution of the case."
Update #2: The New York Times has posted copies of the criminal complaints against all the defendants.
I have made a couple changes to the original post. I changed Mr. Goel's title above. (An Intel spokesman says that he actually works in Intel's corporate treasury department, not in Intel Capital.) I also removed the non-working link to Mr. Moffat's biography.
Update #3: The criminal complaints contain numerous alleged quotes from the FBI's telephone wiretapping. For example, the criminal complaint against Danielle Chiesi, Mark Kurland, and Robert Moffat says this (on page 22):
On or about September 9, 2008, at approximately 10:30 a.m., an individual affiliated with New Castle called CHIESI on Chiesi Landline A. CHIESI said that she "had dinner with IBM." CHIESI said, "He's saying, you know, [IBM's] Z-series looks really good. He's saying that everything looks fine but... it comes down to the... final last week. But he thinks right now that they are on track. As of right now he's not even worried a little bit, I mean, we think we can beat the numbers this quarter." ....when CHIESI said that it comes down to the "final last week," she was referring to the last week of IBM's quarter — the last week of September 2008.
Update #4: Reuters and other press organizations report that IBM has placed Mr. Moffat on leave. "In view of a U.S. federal investigation into his personal activities, Mr. Moffat has been placed on temporarily leave of absence and is no longer serving as an officer of IBM," said company spokesman Edward Barbini. IBM named Rodney Adkins as acting head of the Systems and Technology Group.
| by Timothy Sipples | October 16, 2009 in Current Affairs Permalink | Comments (1) | TrackBack (0) |
Press Reports: U.S. Justice Dept. Opens IBM Antitrust Probe
Major press organizations, such as Reuters, the Associated Press, and the Wall Street Journal, are reporting comments from Ed Black, chairman of the Computer and Communications Industry Association. "We are aware that Justice has begun the CID investigatory process," said Black. (A CID is similar to a subpoena and would indicate that the Justice Department has begun a preliminary investigation of the CCIA's complaints.) According to the press reports, the Justice Department is specifically investigating IBM's mainframe business.
The CCIA is an industry lobbying organization funded by IBM competitors including Microsoft. According to Computerworld (citing the Financial Times), in 2004 the CCIA dropped its antitrust complaint against Microsoft in exchange for Microsoft paying $19.75 million to the organization. Half that amount went to Black personally, according to the report. CCIA member Nokia pulled out of the organization, with Nokia's spokesperson saying at the time, "The settlement content and process were inappropriate."
The U.S. Justice Department has investigated IBM previously and thoroughly for decades, starting at least as far back as the 1950s and including many years when IBM and its mainframe business had a far greater marketshare. However, in 2009, Microsoft's software revenues are triple IBM's, Hewlett-Packard (one of many direct competitors) has passed IBM as the highest revenue technology company, and even Apple's stock market value is greater than IBM's. The Justice Department dropped its previous case in the early 1980s as the personal computer era began.
So far IBM has not commented on the reports.
Update #1: According to MarketWatch, an IBM spokesman said in a statement that the company "intends to cooperate with any inquiries from the Department of Justice."
Update #2: The New York Times reports that a New York federal district judge already dismissed the antitrust complaint against IBM last week. (The plaintiff, T3 Technologies, plans to appeal. MarketWatch reports that Microsoft invested in T3.) The Times quotes more of IBM's statement: "We continue to believe there is no merit to T3’s claims. We understand the Department of Justice has asked T3 for documents from the litigation. IBM intends to cooperate with any inquiries from the Department of Justice."
It is unclear to me why the D.O.J. might be intervening in a civil antitrust case that has already been heard (and dismissed) in federal court, with an appeal pending.
Update #3: The Associated Press has an updated story containing a bit more of IBM's statement. Here's the additional sentence: "We continue to believe there is no merit to T3's claims, and that IBM is fully entitled to enforce our intellectual property rights and protect the investments that we have made in our technologies."
Update #4: Editorial reaction is starting to appear. CNBC's Dennis Kneale: "This anti-capitalist crusade is especially wrongheaded — and utterly ridiculous — in the case of IBM...."
| by Timothy Sipples | October 7, 2009 in Current Affairs Permalink | Comments (2) | TrackBack (0) |
A Tale of Two Mainframe customers – one growing and one leaving the mainframe
This is the tale of two mainframe customers. One customer
has achieved a period of tremendous growth in their business, processing
transactions on the mainframe, while reducing expenses and becoming more
resilient. The other business chose to get off the mainframe at a significant
cost and in all likelihood, spends more today than they would have on the
mainframe. What’s interesting is that at one time, they shared the same system
infrastructure. And Clerity, a consulting firm, would like you to believe that
the non-mainframe customer got tremendous value in the move. Here are their
stories.
In any basic computer architecture class, a student will
learn that the fewer the number of data moves, the better for performance. Now,
in an era of regulatory compliance and privacy considerations, that becomes
exceedingly true because each instance of data must now be auditable and
recoverable which implies additional costs for each extra instance of data.
This becomes important when considering an outsourced computing environment. It appears that SIAC never got this level of education, while its customer, DTCC seems to have excelled in this computer architecture class. Even funnier is that Clerity has decided that SIAC is a model customer…that doesn’t bode too well for their other consulting arrangements.
So what really happened?
DTCC’s trading business was growing tremendously. But let’s have them tell you, in their own words:
Sometimes "insourcing" pays off more than
outsourcing. Until last year, two DTCC subsidiaries outsourced all their
infrastructure support activities to the Securities Industry Automation
Corporation (SIAC). Now, following the completion of a multi-year initiative,
DTCC has cut costs and bolstered business continuity by insourcing the
activities previously performed by SIAC into DTCC’s infrastructure. The two
subsidiaries are National Securities Clearing Corporation (NSCC) and Fixed
Income Clearing Corporation (FICC). ……
On top of strengthening the industry's business
continuity and infrastructure, the project is yielding financial benefits,
enabling DTCC to cut the industry’s overall operating expenses. In 2006, by
leveraging DTCC's processing capabilities, insourcing has reduced DTCC's annual
operating expenses an estimated $42 million, said William Aimetti, DTCC’s chief
operating officer. This was one factor that enabled DTCC to lower its fees in
2006.
And going back to another DTCC newsletter, they explained that they got a 167% performance improvement, without a line of code change, because they reduced the number of data moves and connections necessary to process a transaction:
To keep ahead of transaction volumes that have been rising sharply over
the past several years, DTCC has significantly increased the capacity of its
mainframe database for equity processing. The system, called Trade Repository
Processing (TRP), can now process at least 160 million sides per day. This 167%
increase is nearly triple the previous capacity of 60 million sides.
What’s more, the TRP can handle the additional volume within the same time frames, thanks to changes that make the system perform more efficiently. In addition, for current volumes, the upgrade allows DTCC to deliver certain participant reports, such as the Consolidated Trade Summary, up to 45 minutes earlier.
DTCC was able to do all this without modifying any of their
customers applications. While DTCC was hosted on the SIAC systems, they found
that there were extra network hops and copies of data deployed. They also were
heavily dependent on SIAC to make changes to the infrastructure on a regular
basis. Because both of the SIAC systems were located in the New
York City area, DTCC was also afraid that a single
catastrophe would take out the redundant systems and affect their availability.
These were the fundamental concerns that led DTCC to move out on its own.
Prior to this decision, SIAC signed a multi year agreement for software, systems and services with IBM. This agreement included discounted pricing assuming capacity growth projections that SIAC provided as their objectives. By sharing the mainframe infrastructure with DTCC, SIAC dramatically reduced their own operational overhead which was predominantly associated with batch processing and account reconciliation in the evening, while DTCC used the same processing infrastructure for trade transactions during the day. Each had applications that overlapped each other though.
When DTCC pulled their two applications from the SIAC
system, SIAC was left with a lot of free daytime capacity, but still a
reasonably busy system in the evening. But SIAC was now completely responsible
for the costs of this system. The growth potential that they had promised to IBM
would no longer be possible and as such, the discounts they were offered were
no longer relevant. This underutilized
mainframe was now quite a bit more expensive to SIAC than it had been when it
was sharing the expense with DTCC. That’s a fact…nothing sweet about that.
Now SIAC could actually have downsized with their mainframe
and reduced their costs. Instead, they chose to “down size” to a distributed
environment. In doing so, they also needed to solve federally mandated business
resilience requirements, something they had ignored on their previous mainframe,
and build another data center.
So using SIAC’s own words:
In 2006, when the Shared Data Center team, the technology
arm of the New York Stock Exchange (NYSE), evaluated its internal
infrastructure in light of competitive market factors, changing regulations,
and anticipated future growth, the decision was made to replatform its 1,660
MIPS mainframe workload onto IBM System p Model 595 servers running AIX and
UniKix rehosting software from Clerity.
"Quite simply, we can now transact more business per
hour at a lower rate," said Francis Feldman, Vice President of the Shared Data Center
So let’s parse this a little bit. Notice the timeframe:
2006….it’s the same time that DTCC moved off the SIAC system. The 1660 MIPS is
the combined processing power for both DTCC and SIAC. The reality is that SIAC
NEVER used all that capacity themselves, even though they owned the system. So
while factually true, it wasn’t real. Changing regulations refers to the need
to develop a second site outside the New York metropolitan area. After converting the
applications, SIAC had to create automation and recovery scripts and deploy the
new servers at an alternative location as well. I am assuming that they
licensed the software for those systems as well. And this required changes
for all of SIAC’s customers as well. That cost certainly isn’t factored
into the migration costs for SIAC. Finally, I wonder what SIAC’s cost were when
they shared the infrastructure….is the new solution more or less than that
environment? Unfortunately, we’ll never know because the new environment
includes a new data center….but I could imagine it was less.
So, an alternative plan, at presumably far less expense, effort
and time, with little or no application changes, would have been to downsize
the mainframe to the size appropriate to SIAC’s new capacity requirements. To
meet the resiliency objectives, SIAC could have installed a mainframe in
another geographic location using IBM’s Capacity Backup pricing which would not
have charged for software usage except during a disaster, while still allowing
for regular disaster preparedness testing with no additional licensing costs. Many of IBM’s customers take advantage of this
model for availability processing.
And has availability improved? Click here for a list of outages that SIAC experienced in 2008. All types, but not associated with the mainframe. Perhaps SIAC changed their reporting structure in 2008, but I can’t find many outages listed in a search on 2007, though there is an awful lot of information dating back many years on their site.
As for SIAC, I don't know, but they don't spend nearly the amount of time bragging about their infrastructure as DTCC. That should give you a clue right there!
| by JimPorell | January 6, 2009 in Current Affairs, Economics, History, Systems Technology Permalink | Comments (2) | TrackBack (0) |
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