Akamai insider still a mystery
Tech company executive recorded giving information to woman charged in scheme
It only took a few brief phone calls to link an executive at Akamai Technologies Inc. of Cambridge to a massive hedge fund insider trading case. But which executive? His name has not been revealed by legal authorities, and it’s possible that even Akamai officials don’t yet know who he is.
According to criminal complaints, the insider leaked confidential company information that allowed Raj Rajaratnam, founder of the hedge fund Galleon Group in New York, to make millions of dollars in illicit profits on Akamai stock. Rajaratnam, who is accused of running a network of informants in tech companies nationwide, was arrested with five others Friday in what federal prosecutors call the largest insider trading case involving a hedge fund in US history.
Akamai officials refused to discuss the case at all, declining to say whether federal investigators had told them the name of the “Akamai executive’’ cited in two complaints, or whether any disciplinary action has been taken. Joshua Klein, assistant US attorney for the southern district of New York, where the Galleon complaints were filed, also declined to provide any information about his identity.
Former US attorney for Massachusetts Donald K. Stern, who prosecuted a number of insider trading cases, said investigators “may feel it’s a good thing’’ to tell Akamai who the insider is, but are not legally obliged to reveal his identity to the company.
Stern also noted that the Akamai executive remains at liberty, despite the government’s claim that he provided inside information to traders at Galleon Group and another New York hedge fund, New Castle Funds LLC. Other insiders accused in the case, including executives at IBM Corp., Intel Capital, and McKinsey & Co., were among the six people arrested in the case. Stern said that the Akamai insider may have averted arrest and expo sure by helping federal prosecutors. “This person may have been approached by the government,’’ he said. “My guess is he’s probably cooperating in some fashion.’’
Company officials may also be refraining from comment due to the federally mandated “quiet period’’ in the weeks before a publicly-traded company issues an earnings report. Akamai will issue its third-quarter report Oct. 28 and has a conference call with investors and analysts scheduled for that day. Company executives could discuss the case at that time, but Kerry Rice, a stock analyst with Wedbush Morgan Securities Inc. in Los Angeles, said that they might still refuse to discuss the matter. “Because it’s not related to earnings and revenue,’’ said Rice, “they can try to get away with not talking about it.’’
Court documents provide several hints about the unnamed Akamai executive. He’s referred to as “he,’’ and he may be related to New Castle employee Danielle Chiesi, one of the six people who’ve been arrested.
Federal investigators say that on July 24, 2008, the unidentified Akamai executive placed a 15-minute phone call to Chiesi. After a brief chat, Chiesi called New Castle cofounder Mark Kurland, then called the cellphone of Galleon’s Rajaratnam. Because he was under investigation, Rajaratnam’s phone was tapped.
“Akamai . . . I’m trading it tomorrow,’’ Chiesi said, according to one of the criminal complaints. “I just got a call from my guy . . . I was talking about the family and everything, and then he said people think it’s gonna go to 25 (dollars per share).’’ Chiesi also said that she told the Akamai source, “You’re the only person in the family who helps me.’’
Akamai shares had closed that day at $32.18. Armed with the inside information, New Castle Funds and Galleon Group both began short-selling Akamai stock, a trading technique that lets investors make money when a stock’s value falls. At Galleon, Rajaratnam also purchased “put options,’’ to lock in a high price for his Akamai shares.
Prosecutors allege that New Castle made a profit of more than $2.4 million by illegally trading on the inside information, while Galleon made $3.5 million.
Chiesi received more information from her Akamai source. He called Sept. 9 to discuss whether Akamai would start buying back its own stock or acquire another tech company. By that time, federal investigators had placed a tap on Chiesi’s cellphone. During the call, Chiesi urged the Akamai executive to buy stock in the chip maker Advanced Micro Devices Inc., based on inside information she’d received from Rajaratnam and another defendant, IBM Corp. senior vice president Robert Moffat.
About a month later, the Akamai executive called Chiesi’s landline phone to tell her he was coming to New York with “a major present for you.’’ When Chiesi asked what the present was, the executive replied, “Information.’’
New Castle announced yesterday that Kurland has taken a leave of absence from the firm, and that it severed its relationship with Chiesi. During the time she was allegedly short selling Akamai shares, Chiesi faced a federal lien for $63,226 in unpaid taxes. Records show she paid the Internal Revenue Service in November 2008.
Akamai is one of the leading technology companies in Massachusetts, with approximately 1,600 employees worldwide. The company, which provides infrastructure on which data is moved over the Internet, had revenue of $790 million in 2008, up sharply over the past four years.
Jonathan Seelig, managing director at the Boston venture capital firm Globespan Capital Partners, cofounded Akamai in 1998. He said during his days with the company, Akamai had stiff rules guarding against insider trading.
“We did everything that we could to make sure that we were following every last protocol and every last letter of the law,’’ Seelig said. But he added that no amount of regulation can prevent individual employees from violating the rules. “Can you keep somebody from whispering something to somebody they know?’’ he said. “Absolutely not.’’
Material from Globe wire services was included in this report. Hiawatha Bray can be reached at bray@globe.com. 
