x Abu Dhabi, UAEMonday 22 January 2018

Globalfoundries chairman resigns after insider claims

The chairman of Globalfoundries, the microchip maker controlled by Abu Dhabi, has resigned days after being connected in media reports to an insider-trading scandal.

The chairman of Globalfoundries, the microchip maker controlled by Abu Dhabi, has resigned days after being connected in media reports to an insider-trading scandal. Hector Ruiz previously led the chip maker AMD, which spun off its manufacturing assets to create Globalfoundries this year. Mr Ruiz's resignation from Globalfoundries, which is majority-owned by Abu Dhabi's Advanced Technology Investment Company, is effective from January 4 but he will take leave of absence immediately, the company said in a statement. It gave no reason for his departure.

He was a key figure in the process that saw AMD hive off its chip making operations into a new business. The spin-off coincided with Mubadala, the Abu Dhabi Government-owned investment company, doubling its stake in AMD to 20 per cent. Under the deal, ATIC agreed to pay US$2.1 billion (Dh7.71bn) for its stake in the manufacturing business, while committing to invest up to $6bn in additional equity over the following five years.

The deal was one of a number in which a network of US investors and businessmen are alleged to have traded in insider information. American federal investigators said last week they had evidence that information regarding the deal was passed on to an insider-trading ring orchestrated by Raj Rajaratnam, the founder of the hedge fund firm Galleon Group. Mr Rajaratnam and other alleged members of the ring have been arrested in the US for gathering and trading on inside information about major deals before they were announced.

Last week The Wall Street Journal reported that Mr Ruiz was the source of the leaked information, passing it on to Danielle Chiesi, a former investment banker who has been charged with being part of the alleged ring. Court documents say Ms Chiesi allegedly learned from Mr Ruiz of the impending deal in September last year, a month before it was publicly announced. According to the Journal, the US Federal Bureau of Investigation intercepted communications between an unidentified AMD official, now claimed to be Mr Ruiz, and Ms Chiesi.

In the call, the unnamed executive says there was a "99 per cent" chance the deal would be announced in October last year, before AMD reported its quarterly earnings. He also says that, "We're gonna shock the hell out of everybody" with the deal, according to the intercepted conversations. The announcement came on October 7. The reported involvement of Mr Ruiz adds a new twist to the insider-trading saga, one of the largest such prosecutions in US history.

Mr Rajaratnam and the other accused members of the ring allegedly used connections with high-ranking executives like Mr Ruiz to pry out information about impending company announcements before they were publicly revealed. The companies involved ranged from AMD to Google, Intel and Hilton Hotels. In the AMD case, Mr Rajaratnam was also assisted by information provided by Anil Kumar, a McKinsey consultant who had been hired by AMD to advise on the deal and has been arrested and charged in the case, court documents say.

Armed with the inside information about the AMD deal, Mr Rajaratnam allegedly bought more than 16 million AMD shares, anticipating that their price would increase once the deal became public. But the deal came at the beginning of the financial crisis, and while AMD shares jumped 25 per cent when it was announced, Mr Rajaratnam lost an estimated $30 million on the investment. Mr Rajaratnam, who is now free on $100m bail in the US as he awaits trial, recently announced that Galleon Group's hedge funds would be wound down and liquidated. Mubadala officials have declined to comment on the case.