WOW!!! Could Hector Ruiz be a bigger scumbag than Bernie Madoff???

IF the allegations are true, then Hector will surely rank right up there with Ponzi-boy as the poster child of breaching a fiduciary duty. Ponzi-boy breached his duty to his investors. If the allegations are true, then Ruiz breached his fiduciary duty to his shareholders.

This is shaping up to be an amazing story - if true.

Like I said, "Wow"!!!!

Here is the story from the Wall Street Journal - which will be in print tomorrow AM (October 28).

WOW!!!!

http://online.wsj.com/article/SB125668266149911475.html?mod=djemalertNEWS

Ex-Chief of AMD Is Linked to Galleon
By ROBERT A. GUTH and DON CLARK

One of the technology industry's highest-profile executives has become ensnared in an alleged insider-trading case that is shaking the corporate and financial worlds.
Hector Ruiz, former chairman and chief executive officer of AMD, speaks during a session entitled 'The Power of Collaborative Innovation' on day three of the World Economic Forum in Davos, Switzerland, on Jan. 25, 2008.


A criminal case filed by the Manhattan U.S. Attorney's office earlier this month alleged an unnamed Advanced Micro Devices Inc. executive shared confidential information about the chip maker with a defendant in the case. The AMD executive is Hector Ruiz, then AMD's chairman and previously the company's chief executive, according to a person familiar with the matter.
Mr. Ruiz, who isn't a defendant, didn't return calls seeking comment. A lawyer for Danielle Chiesi, a defendant in the case and the person to whom the person said Mr. Ruiz allegedly passed the information, declined to comment.
The involvement of Mr. Ruiz, 63 years old, adds the biggest name yet to the case, in which Raj Rajaratnam, co-founder of the hedge-fund firm Galleon Group, and five others including Ms. Chiesi face federal criminal and civil charges. All have said they are innocent. Galleon said Tuesday it has nearly completed liquidating its funds.

A complaint filed in a New York federal court this month alleged that the AMD executive now identified as Mr. Ruiz shared confidential information with Ms. Chiesi about a 2008 reorganization of AMD. The deal spun off AMD's manufacturing operations to a joint venture bankrolled by investors from Abu Dhabi. Mr. Ruiz became chairman of the new company, Globalfoundries Inc., and continues in that role.

Globalfoundries declined to comment. Drew Prairie, an AMD spokesman, said, "We are continuing to evaluate the matter and we are not aware of any allegation of criminal misconduct on the part of AMD or any current or former employees." He declined to comment on the investigation.

Galleon and a hedge fund where Ms. Chiesi worked, New Castle LLC, bought AMD shares in hopes of profiting when the deal was announced, according to the criminal complaint and a civil action by the Securities and Exchange Commission. They ultimately didn't profit, prosecutors say, amid a slumping stock market last fall.

More
• Deal Journal: The Hector Ruiz File
• WSJ Topics: Galleon Group

The U.S. doesn't allege that the AMD executive identified as Mr. Ruiz traded for himself or received any money for passing along information.
It isn't clear what legal liability, if any, he could potentially face for the allegations described in the criminal complaint. Other executives named in the case who didn't trade on the information or receive money for information were charged with conspiracy, and have denied wrongdoing. Court documents don't indicate whether prosecutors or SEC officials are considering additional legal actions related to AMD. Representatives of the Manhattan U.S. Attorney's office and the SEC declined to comment.

Mr. Ruiz is one of the chip industry's most respected executives, credited with pushing a series of changes to help AMD compete against Intel Corp.

Defendants besides Mr. Rajaratnam and Ms. Chiesi include Robert Moffat, a senior vice president at International Business Machines Corp.

Mr. Ruiz, who grew up in Mexico, learned English while doing chores for a Methodist missionary. He earned a doctorate in electrical engineering and worked at Texas Instruments Inc. before a 22-year stint at Motorola Inc. He joined AMD in 2000, and two years later was named CEO of the Sunnyvale, Calif., company, which he largely ran from offices in Austin, Texas. AMD reported losses for much of Mr. Ruiz's time as CEO but made progress in penetrating markets dominated by Intel.

Mr. Ruiz dispensed with some businesses while adding others, notably ATI Technologies, a maker of graphics chips. That $5.4 billion deal left AMD with heavy debt.

Mr. Ruiz concluded AMD needed to follow the lead of other chip designers in shedding factories. The criminal complaint that cites the unnamed AMD executive is based largely on recorded conversations during about four months in summer 2008 while AMD negotiated a spinoff of the operations. That venture would receive billions of dollars from government-owned investment firms in Abu Dhabi. AMD also had to negotiate with IBM over a license for IBM-owned technology.

The complaint against Mr. Rajaratnam also alleges he received information about the AMD transaction from Anil Kumar, who worked at McKinsey & Co., which provided consulting service to AMD. Through a lawyer, Mr. Kumar, a defendant in the case, has denied the charge.

According to the government complaints, Mr. Moffat, the IBM executive, took part in those negotiations, and later allegedly shared insider information about the spinoff transaction with Ms. Chiesi.

According to the person familiar with the matter, Ms. Chiesi appeared to collect information from Mr. Moffat and "the AMD Executive" now identified as Mr. Ruiz, and to share it with Mr. Rajaratnam and a co-defendant at New Castle named Mark Kurland. A lawyer for Mr. Kurland declined to comment.

In a recorded conversation on June 6, 2008, Ms. Chiesi gave Mr. Rajaratnam an update on the AMD "deal" based on a talk she said she had with the AMD executive, according to the criminal complaint. The complaint said that in August and September 2008, the executive now identified as Mr. Ruiz and Ms. Chiesi discussed such details as the timing of the transactions and how big an impression the spinoff would make on investors.

On Aug. 26, 2008, the complaint said she asked the executive if AMD would be left with less than $3 billion in debt, to which he replied "yes," and then confirmed that the deal would be announced in September.

In September 2008 the AMD executive called Mr. Chiesi and had a brief discussion of the spinoff, saying "you know, we're going to shock the hell out of everybody," and that the deal would likely come in October.

Both Galleon and New Castle bought AMD shares before the transaction was announced on Oct. 7 -- the date Mr. Rajaratnam had predicted in a Sept. 30 conversation with Ms. Chiesi, the complaint against her states. AMD's stock opened that trading that day about 25% higher than the previous day's closing price, the document adds.
But the trades took place when the stock market was falling amid the worsening financial crisis. Neither firm made money on the insider trading, the government complaints say.

Separately, Galleon's liquidation of $3.7 billion in securities in its hedge funds' portfolios is "more than 90% complete," a person familiar with the matter said Tuesday.

Update on Galleon Group

From Dealbreaker, and the "that didn't take long" category. Note the phrase at the bottom: "We could be closed by Friday. Too many of our clients are institutions that are prohibited from doing business with alleged felons.”

dealbreaker.com/2009/10/investors-pulling-money-from-g.php

Investors Pulling Money From Galleon Tech Fund, Galleon Risk Management Head: “We Could Be Closed By Friday”

Posted by Teri Buhl, Oct 19, 2009, 3:05pm

The Galleon Group said Friday that it “continues to operate and is highly liquid” but one of firm’s top lieutenants is admitting he doesn’t think the shop will last long.

Traders close to Sanjay Santhanam, a Galleon partner and head of risk management, told Dealbreaker he’s admitted defeat. The firm is already seeing investors withdraw their money out of Galleon’s technology fund, according to the Wall Street Journal.

The technology hedge fund run by Galleon Group founder and insider-trading suspect Raj Rajaratnam allows investors to withdraw their money monthly, a much shorter time horizon than many hedge funds, including others at Galleon. Rochdale Investment Management, an investor in a diversified hedge fund that is Galleon’s largest, has already said it’s withdrawing all its money from that fund.

When asked about investor withdrawals on Monday, a Galleon spokesman declined to comment.

The chief executive of Rochdale told Dow Jones Newswires on Monday it will liquidate its entire position in Galleon Group’s largest hedge fund, Galleon Diversified Fund. The statement came three days after Mr. Rajaratnam’s arrest on charges of insider trading.

Sources tell Dealbreaker that Santhanam has told people close to him: “We could be closed by Friday. Too many of our clients are institutions that are prohibited from doing business with alleged felons.”
2Recommend this! 41Comments

Only $20mm for Raj at Galleon Group ??? I’d guess that this number is very wrong.

October 19

There have been a lot of really good stories written about the “you scratch my back, I’ll scratch your back” insider trading scandal at Galleon since the story broke last Friday.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aoHhSaJptk8o

At the daily morning meetings at Galleon, Raj would ask questions of the analysts, PMs, and traders. Nothing unusual here, as this happens everywhere, every morning.

Question: How much of the questioning was the result of “knowing” the answer, and then leading the questioning so that everyone else got to the answer, that you already “knew”?

Any really good analyst will act like a prosecutorial attorney – you never ask a question of your witness unless you already know the answer. In other words, your lines of questions are narrow, focused, and will lead somewhere – to the answer that you already know.

Therefore, if Raj already knew the answers to his questions, he effectively is leading the team at Galleon to trade in certain way. As a result, it seems highly likely that the whole firm is benefitting from insider information. As the whole firm benefits, so do its portfolio managers, and Raj himself. At the end of the day, how much of Raj’s net worth of $1.3 billion was tied to illegal trading activity? My guess - a very large proportion, meaning that Raj’s personal gain from the illegal insider trading was worth a LOT more than $20 million.

The next question? How long does Galleon last as an independent entity? According to CNBC this morning, Raj is at work, in a “business as usual” mode.

I doubt that Raj and Galleon last the week.

More Thoughts on Rick Sherlund (ex Goldman Sachs) Leaving Galleon Group

OK, so I really doubt that Rick was involved in anything nefarious. He made so much money over 25 years at Goldman that he really doesn’t need more. As a sell-side analyst, you spend a LOT of time uncovering really interesting and market moving issues about the companies that you cover. Then you have to publish those items, and let everyone else know what it took you a long time to figure out. The irony is that these PMs will crap on you while taking your information and trade on that information. Given the wealth being generated by a lot of these hedge fund managers, it’s no wonder that the natural move of any sell-side analyst is to move over to the buy-side as a Portfolio Manager.

I’ve run across Rick a few times when I covered the same companies, but I didn’t know him. I would listen to him asking questions at various Analyst days, and I learned to focus on questions that would tweak the financial model, rather than worry about a lot of the bigger picture technology issues that tried to show management how “smart” you were. That was smart on his part because regardless of the issue, the PM would always ask you how it affected revenue and earnings, and hence, what was the stock really worth. Focusing on the financial model disciplines you to think about how it affects valuation, so you will always be able to answer the valuation question.

When Rick left Goldman in early 2007 to join Galleon, he began to manage a portfolio, so I wouldn’t be surprised to learn that his motivation to leave was to manage money and trade on his own ideas.

In 2007, Galleon was “the” place to join, and given Rick’s high profile career at Goldman, Rick could join any group he wanted.

Then it gets tough. Your portfolio has to generate above benchmark returns.

So, 2008 was a complete write-off for the industry, and the first three months of 2009 looked worse. What happens now?

Well, the market goes up 65% in 6 months, and if you’re holding a large proportion in cash, you are falling behind.

What were Rick’s numbers like? To be brief, I have no idea. However, let’s posit the following scenario.

Raj comes into Rick’s office and asks him how he plans to improve his numbers because they’re crappy. Rick is doing the same things that he did as a Sell-side analyst, and works his platinum rolodex to find out key information about the internal operations of a company. Raj tells him to start working that Rolodex harder since Ray just made some trades based on key information that he “learned” – which we now learn was obtained illegally.

I have no idea whether this happened, but if it did, I can understand why Rick left Galleon.

Does anyone else remember that Rick Sherlund went to Galleon Group after Leaving Goldman Sachs?

October 16

So, I was wondering how long it would take Rick Sherlund to leave Galleon Group.

To be honest, I had forgotten all about Rick until today, when the insider trading scandal at Galleon broke.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQFoJVX3k8Ho

The founder of Galleon, Raj Rajaratnam, was charged today with insider trading, in a really juicy case. His co-conspirators included a senior person at Intel Capital and McKinsey – of all places. Based on the complaint, these people traded on inside information in a "you scratch my back, I'll scratch your back" scheme - which was working really well until the FBI got tipped, and began recording the phone calls of various participants.

Like I said, really juicy.

In any event, Sherlund left Goldman Sachs to join Galleon Group in March of 2007.

http://files.wallstreetfolly.com/wordpress/2007/03/goldmans-rick-sherlund-lands-at-the-galleon-group/

Interestingly, you will note from his LinkedIn profile, that Galleon Group is not mentioned.

http://www.linkedin.com/pub/rick-sherlund/5/121/750

This profile indicates that Rick formed Ketchum Capital group in 2009, and has been there less than a year. When I originally sat down to write this entry, my thought was that Sherlund was still at Galleon, though he would announce his departure from Galleon before the weekend was over in order to avoid any of the stench.

However, it looks like he didn’t like what was going on at Galleon, and left before this scandal broke.

Based on the story published by Bloomberg, it sure sounds like a lot of people at Galleon knew what was going on.

I wonder why it took Sherlund 2 years to figure it out?

How is your Mexican?

So......I'm sure those politicians in NC that gave Dell all those tax breaks 4 years ago to get Dell to build their facility in NC will be sleeping well tonight. ...NOT!!


Dell to outsource N.C. jobs to Mexico

Dell Inc. is outsourcing to Mexico and other countries the work done at the North Carolina manufacturing plant the company is closing.

Round Rock-based Dell (Nasdaq: DELL) revealed the plans in a Trade Adjustment Assistance Act petition that the computer maker filed this week with U.S. Department of Labor, according to several published reports.

Dell is cutting nearly 1,000 jobs as a result of the move. The first 600 workers will lose their jobs next month.

“Our work volume is being transferred to a global manufacturing network,” Dell reported in the filing. “The work will be given to third-party providers who operate in Mexico and other countries around the globe.”

Dell, the No. 3 computer maker in the world, employs about 16,000 Central Texas workers.
Company officials said the North Carolina closing is “simplifying operations and improving efficiency.” Dell has been attempting to reduce annual operating costs by $4 billion.

Meanwhile, the company continues with the $3.9 billion acquisition of Plano-based Perot Systems Corp., which was announced last month. It would be the largest acquisition in Dell’s history.

Do you know who is managing your money?

I was speaking to the CIO of a large university endowment fund recently.

I have a very strong quant background, so numbers have been my life, for, well…my life.

During the conversation with the CIO, I asked him whether he uses performance attribution measurement products from either Barra or Northfield to determine the performance attribution of the various external investment managers engaged to manage the various asset classes.

He told me that he doesn’t, but has someone on staff whose entire job is to do this performance attribution computation. Since I have many years of experience designing, building, testing and interpreting the type of statistical equations required to systematically attribute performance, I was more than a little surprised. I’ve been spinning regression equations for over 30 years, so unless this “full time” person was doing that, which I doubt, then he was attributing performance via a spreadsheet.

I also asked him whether he planned do add these products in the future. He told me that he may look at it. In other words, I doubt it.

Here is my point.

Although the numbers have not been reported, I think the endowment lost about 30% or more last year – which is in line with other endowments across the country, so it doesn’t really stand out as abhorrently poor on a relative basis – even though the absolute number is very poor. In other words, when asked to explain his crappy performance to the University President, his reply will be, “Well, we did no worse than anyone else.”

Among other things, the endowment is used to fund the construction of new buildings as well as to fund scholarships and to employ people. Earlier this year, Harvard cancelled the construction of a new medical research building, graduate housing, parking and a Center for Government and International Studies. , significantly reduced the number of scholarships, and laid off employees. Harvard has also frozen employee salaries, slowed hiring, cut staff and offered other workers early retirement as part of a cost-cutting program to compensate for losses in its endowment. (see Forbes story on Harvard’s slump, entitled “How Harvard’s Investing SuperStars Failed”, February 20, 2009.

http://www.forbes.com/2009/02/20/harvard-endowment-failed-business_harvard.html

Bloomberg just published a story indicating that Harvard’s unwinding of interest rate swaps cost the Endowment Fund almost $500mm, and unwinding those positions cut significantly into its operating budget which led to the cutbacks described above.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHou7iMlBMN8

The press announcement from Harvard which detailed these cutbacks specifically pointed to the significant negative returns of the Harvard Endowment fund.

I’d be surprised to learn that the reaction was any different from the University President and administration staff at the College I was speaking.

The bottom line is that this endowment is valued at over $1.0 billion – and is managed entirely by external asset managers that specialize in various asset classes – Bonds, equities, real estate, etc. The attribution question comes down to the following: are those external managers managing to the strategy defined by the University, or are they simply reporting returns. A hedge fund will confidently say: “we are hedging beta.” However, no one ever asks them, “Which Beta?” Beta computed daily, computed, weekly, computed monthly, quarterly? Moreover, how does the Beta of the component return change over time, and how is the Beta being hedged based on the current market. A hedge fund may be hedging P/E, but in this market, mid-P/E needs to be hedged more than low P/E or high P/E.

It all makes a difference – are the managers being paid to do what they have told you they are doing, or what they are doing today to generate returns?

.....I can't believe it. This team is managing over 1 billion,...US Dollars, and they have no clue.

Wow!, that was really arrogant!!

One of my RSS Feeds is "The Post Money Value".

Rick Segal tells of a really funny, but all too frequent occurrence in the Valley, and something I have experienced one too many times.

There is a coffee shop here in Palo Alto called The Prolific Oven. I’ve been sitting here for a quite awhile catching up on email, building spreadsheets and other things for my company before heading to the airport.

So far, I’ve unintentionally managed to overhear not one but 4 pitches to Venture Capitalists. I wasn’t trying. I know it was VC pitches because the ritual of the VC giving the sales pitch was carried out with laser-like efficiency.

The first thing I’ve noticed is there must be some kind of secret handshake whereby no two people working in the same general area show up at the same time. It appears nobody cares if there are 50 people listening to a loud pitch and dialog going back and forth.

The second interesting thing is when some investment person doesn’t want to be in the meeting, they are not shy about showing it. Wow. You are sitting with two people and you pull out your iPhone and start tapping while the entrepreneur is talking and looking directly at you? Really? Wow, that just is 20 for 10 on the rude scale.

4 meetings, total of 15 or so people, with mostly Macs and mostly RIM devices being rudely pulled out of the holsters.

And loud. Yowsa, whatever happened to sitting in a quiet corner?

Theme songs:

“Let me take it back to the team and socialize this opportunity for portfolio synergy.” (No, really!)

“Can I get the business plan and your [] year forecasts?”

“Very interesting, let’s continue the dialog.”

“You’d need to move here and we don’t invest in Maine.”

“Isn’t Google Wave going to do this?” (I almost choked on my tea when this got blurted out.)

And at the 50% level: “No, I don’t sign NDAs.”

I love this place….