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RESEARCH TRIANGLE PARK, N.C. – A former IBM senior executive says he is pleading guilty to federal charges arising from what prosecutors call the largest insider trading case in hedge fund history.

Robert Moffat of Ridgefield, Conn., announced his plea Monday in federal court in Manhattan. It was not immediately accepted by the magistrate judge.

Moffat, 53, says he is pleading guilty to conspiracy to commit securities fraud and securities fraud. The charges carry a potential penalty of 25 years in prison.A plea agreement, though, contained language indicating he may end up serving six months in prison or less

Moffat was once considered a candidate for chief executive officer at (NYSE: IBM) . He has been free on $2 million bail.

The executive has numerous Triangle connections. Once a top executive in IBM’s personal computer division that was largely based in the Triangle, he also was a member of the advisory board at Lenovo. Lenovo bought IBM’s PC division in 2005.

Moffat was considered the highest level executive arrested in connection with a scheme that centered on the securities trades of a portfolio manager for Galleon Group.

During a hearing in U.S. District Court in Manhattan, Moffat told the magistrate in a shaky voice that he provided inside information between August and October 2008 to Daniele Chiesi, a friend and a co-defendant in the case. At the time, Moffat was senior vice president and group executive at International Business Machines Corp.’s Systems and Technology Group.

"I disclosed this information in this case intentionally and I knew that what I was doing was wrong," he said.

After the plea, Moffat’s lawyer, Kerry Andrew Lawrence, released a statement saying his client "accepted responsibility for his conduct in improperly disclosing confidential information" to Chiesi.

The lawyer wrote that Moffat never engaged in any trading in connection with inside information he gave out and he received no money or other financial benefit in return.

"Mr. Moffat deeply regrets his conduct and is deeply sorry for the embarassment his conduct has caused to his family and to his former employer, IBM," the statement said.

Chiesi, 44, of Manhattan has pleaded not guilty to charges in the insider trading scheme that could carry a potential penalty of up to 155 years in prison. Chiesi worked for New Castle, the equity hedge fund group of Bear Stearns Asset Management Inc. that had assets worth about $1 billion under management.

She has asked that her trial be severed from the trial of Galleon Group founder Raj Rajaratnam, 52. He too has denied securities fraud charges that were first brought in October.

Once described as one of wealthiest men in the United States, Rajaratnam remains free on $100 million bail. Charges against him carry a potential penalty of up to 185 years in prison.

Prosecutors say Rajaratnam may have made more than $50 million through improper securities trades.

In court papers filed in the case, prosecutors provided excerpts of transcripts of telephone conversations between Chiesi and Rajaratnam.

Chiesi and Rajaratnam were heard on a government wiretap of a Sept. 26, 2008, phone conversation discussing whether Moffat should move from IBM to a different technology company to aid the scheme, according to the papers.

"Put him in some company where we can trade well," Rajaratnam was quoted in the court papers as saying.

The complaint said Chiesi replied: "I know, I know. I’m thinking that too. Or just keep him at IBM, you know, because this guy is giving me more information. … I’d like to keep him at IBM right now because that’s a very powerful place for him. For us, too."

According to the court papers, Rajaratnam replied: "Only if he becomes CEO." And Chiesi was quoted as replying: "Well, not really. I mean, come on. … you know, we nailed it."

Lawrence confirmed last week that Moffat had  waived indictment. The lawyer spoke after prosecutors filed a one-page note in the case saying they intend to file a document outlining charges against Moffat once he formally waives indictment. That is a process that others in the case have followed before pleading guilty. No date was set, however. Lawrence declined to comment further.

“The document that was filed simply says that the government is planning on filing information upon Mr. Moffat’s waiver of indictment,” Lawrence told Bloomberg news. However, he declined to say if Moffat would plead guilty.

The case also is unique because prosecutors made extensive use of wiretaps for the first time in an insider trading case to capture hundreds of phone conversations between the defendants.

The wiretaps have already become a focus of lawyers. Last week  the 2nd U.S. Circuit Court of Appeals heard arguments before delaying a decision on whether defense attorneys must release the wiretap evidence they received from prosecutors to the Securities and Exchange Commission.

"The United States Attorney’s Office will file an information upon the defendant’s waiver of indictment," the filing in Manhattan federal court by prosecutors said, according to Reuters.

An information is an alternative charging document to an indictment and usually indicates the defendant has agreed to plead guilty, Reuter noted.

In January, Lawrence told Bloomberg news: “We’re not engaging in plea discussions and are hopeful to avoid an indictment.”

A January court filing regarding Moffat in the case noted:

“We are in the process of finalizing a plea agreement with defendant [Mark] Kurland [co-founder of New Castle Funds] and are engaged in ongoing discussions with counsel for defendant Moffat.”

At New Castle, Kurland supervised Danielle Chiesi, who is alleged to have gotten information from Moffit and relayed it to billionaire Raj Rajaratnam as well as Kurland.

Chiesi’s attorneys told Bloomberg that the Kurland talks had “no impact on our case. We are continuing to vigorously maintain our innocence, and plan to fight this all the way through to the end.”

The filing also included some interesting background about the Moffat case. He was required to:

• “Execute” a $2 million personal recognizance bond

• Bond had to be co-signed ‘by two financially responsible persons”

• He also needed to secure the bond “by property with equity of at least $700,000

• He had to “limit his travel” to the U.S.

• He had to surrender “all travel documents”

Some of the allegations about Moffat center on IBM’s discussions about a possible acquisition of Sun Microsystems. IBM later decided not to buy Sun, which was later bought by Oracle.

“The SEC … alleges that Moffat provided inside information to [defendant Danielle} Chiesi about Sun Microsystems. Moffat obtained the information when IBM was contemplating acquiring Sun,” the SEC said in a statement. “Chiesi then allegedly traded on the basis of this information on behalf of New Castle, making approximately $1 million in profits.”

IBM, which employs some 10,000 people in RTP, declined comment about the case. Moffat left IBM shortly after the case erupted.

Moffat’s title was senior vice president and group executive at IBM’s Systems and Technology Group, making him head of IBM’s hardware operations. Moffat took over the $20 billion group last year. He worked at IBM for 31 years.

According to ChannelWeb, which follows IBM closely, Moffat was a confidant of IBM Chairman and Chief Executive Officer Sam Palisamo and has been considered a possible successor to Palmisano. ChannelWeb labeled Moffat as the “no-nonsense hardware boss” at IBM.