The blonde hedge-fund queen whose pillow talk made her millions
How phone-taps trapped the masterminds behind the biggest insider-trading scam ever. By Thomas Molloy
Seductive finance wizard: Former beauty queen Danielle Chiesi
The most sensational insider-trading case in history came to end this week with the jailing of Danielle Chiesi -- a former beauty queen who seduced a straight-laced IBM executive and then made millions from the pillow talk.
Chiesi, a blonde femme fatale with a preference for pearls and stiletto heels, finally entered a luxury jail on Tuesday where she is due to spend the next 30 months wearing khakis and work boots.
The 45-year-old financial analyst, who pleaded guilty to securities fraud was the final person jailed in a scandal involving one of the world's biggest hedge funds.
The billionaire owner of the fund and Chiesi's associate, Raj Rajaratnam, was sentenced last week to 11 years in prison after a lengthy court case proved that he had used a chain of informants to gain information illegally which he then used to trade shares.
The case has thrown a tawdry spotlight on the world of hedge funds and sent shivers through the industry which is still little understood but plays a big role in the financial world.
The idea behind hedge funds is almost as old the stock market itself: traders borrow money to bet on shares. This means the profits are huge if things go well, but losses can also be huge. Many of the funds use computer programs to make the bets which can last for a fraction of a second.
Chiesi and Rajaratnam tried to tilt the odds in their favour by gaining access to private information, known as insider trading, so that their bets would come right more often.
For a long time this worked for Rajaratnam, who was among the world's 30 richest people and the wealthiest Sri Lankan. His $7bn hedge fund benefited greatly from Chiesi, who used her considerable sex appeal to get the sort of information she needed. Some was used for her own purposes and some was traded with Rajaratnam.
Security snoops used phone taps for the first time in an insider-trading case to find out how Chiesi and Rajaratnam operated.
Prosecutors estimate that the hedge fund made at least $20m from the information gathered by Chiesi after she began an affair with former IBM official Robert Moffat who then unwittingly passed on information to the hedge fund about a forthcoming takeover.
While the story of a workaholic technocrat falling for a younger woman who said she loved the three Ss (sports, stocks and sex) is as old as the hills, it has engrossed Wall Street because many traders believe it is only the tip of the iceberg.
Many more feel sorry for Moffat, who was once spoken of as a future chief executive but ended up instead serving six months in jail.
CNN reported recently that of all the buttoned-down executives at IBM, Moffat was the last one that employees could imagine being caught up in a scandal, let alone a crime.
The former boy scout had a reputation for loyalty and had helped to turn around key units within the computer giant several times.
Moffat's problem was that Chiesi was a formidable digger. She befriended Moffat's secretary and even gave her a gift. The phone taps show that one day the secretary told Chiesi that her boss was at a meeting with a company and when Chiesi asked him how the meeting went, he blurted out that the company's results would be poor.
"They're going to crap the bed," was how he put it. An obvious sign for the hedge fund to sell.
What neither Chiesi nor Rajaratnam realised was that the FBI was listening to their telephone conversations. The Feds had been investigating Rajaratnam since 2007 and the phone taps soon expanded to include Chiesi.
"Moffat's terrific," Chiesi told Rajaratnam, according to an excerpt from one government phone tap. "He's a huge coup for me."
In another telephone conversation played during Rajaratnam's trial, she told the Sri Lankan that she "played" another friend "like a piano" after getting a tip that a company called Akamai Technologies would announce that profits would be lower than expected.
"You did it in such a classy way," Rajaratnam replied. "The way you worked the relationship."
The hedge fund also used insider information from eight other companies including Hilton Hotels, Google and Advanced Micro Devices.
Not all the information came from Chiesi. An analyst at ratings firm Moody's, who was involved with evaluating Hilton Hotels, passed on information that Hilton would be bought.
Whitney Tilson, founder and managing partner of the T2 Partners hedge fund, believes it is not too unusual that there are a few bad eggs among the world's hedge funds.
"I'm not surprised that among 8,000 hedge funds there will always be a few rogues behaving badly. It's quite stunning somebody who is already a billionaire could be so foolish."
Chiesi told reporters she was confident she'd make it through her time in prison. "I anticipate to survive," she said outside the courtroom where she was sentenced. When asked how she would achieve that, she smiled and said: "By breathing."
Originally published in
