Did former AMD CEO Hector Ruiz pass info to Galleon -- for nothing?

Remember Galleon Group? It used to be a $3.7 billion hedge fund before its manager, Raj Rajaratnam, was accused of using inside information to trade stocks (he's now out on $100 million bail). One of the alleged inside trades was a bet on a spike in the stock of Advanced Micro Devices (AMD) following a 2008 spin-off. Advance news of that deal allegedly reached Rajaratnam through Danielle Chiese, a portfolio manager at New Castle Funds, who heard it from -- wait for it -- AMD's CEO at the time, Hector Ruiz.

This is a surprising turn of events. Sure, CEOs have better information than anyone else, and it wouldn't shock me that some are flawed enough to trade on this information -- but it's rare for them to get caught. And yet, the Wall Street Journal reports that Ruiz alerted Chiesi to that spin-off (Ruiz hasn't been charged with any violation).

Or he was one of a trio of people who tipped off Chiesi. That's because she was hedging her bets. She also allegedly tapped former McKinsey Director Anil Kumar for information on the AMD deal (it was a client) and former IBM (IBM) executive Robert Moffat.

The spinoff in question sent AMD's chip foundry into a new company that Ruiz now chairs -- Globalfoundries. Its creation was financed with $8.4 billion from Abu Dhabi. And here's another startling twist: According to the Journal, the U.S. alleges that Ruiz received no cash compensation for providing the information to Chiesi.

If this turns out to be true, I'd be quite puzzled about why Ruiz would risk his career and his freedom to provide this information. Ruiz grew up on the U.S.-Mexican border and became CEO of AMD in 2002. According to Bloomberg, he made $2.97 million in 2008, the year he left AMD -- $1.12 million in salary and $1.36 million in option awards. That's not all. His AMD retirement bonus totaled $4.4 million, and the Globalfoundries spin-off netted him $3 million.

What could possibly motivate high-powered, well-paid executives to give inside information that would cost them their careers and entail jail time in exchange for nothing? I think the answer is that Chiesi had something on Ruiz, but it will require further investigation to determine that. We know that McKinsey's Kumar -- who also allegedly contributed to the AMD tipping -- was a Galleon investor, so he might have thought he would profit directly.

But if the U.S. is correct that Ruiz didn't benefit monetarily from his tipping, he might also be able to escape insider trading charges because he didn't trade on the information. Will Ruiz lose his job at Globalfoundries? Will we ever get an explanation of why he might have risked it all to tip Chiesi?

And if it was so natural for Ruiz to spill inside information to hedge funds, how widespread is such behavior between public company CEOs and hedge funds? Here's something that wouldn't surprise me: if fear of which shoe will drop next has a chilling effect on the stock market for months to come.

Peter Cohan is a management consultant, Babson professor and author of nine books, includingCapital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.

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