Oct. 28 (Bloomberg) -- Hector Ruiz, former chief executive officer of Advanced Micro Devices Inc., is the AMD executive who prosecutors allege provided information to a defendant in the Galleon Group LLC insider-trading case, a person familiar with the investigation said.

An unnamed “AMD executive” was cited in a complaint filed against Danielle Chiesi, who is accused of using material nonpublic information to trade stocks. The person identifying Ruiz as the executive asked to remain anonymous because those details of the case aren’t public. Ruiz stepped down as CEO last year and then became chairman of Globalfoundries Inc. as part of its spinoff by AMD, the world’s second-largest maker of personal-computer processors.

Chiesi, a former Bear Stearns Cos. hedge-fund employee, was charged by federal prosecutors as part of an insider-trading ring tied to Billionaire Raj Rajaratnam, Galleon’s co-founder. Court documents include transcripts of recorded conversations between Chiesi and the AMD executive, in which they allegedly discussed the timing of the spinoff of AMD’s manufacturing operations into a joint venture with the government of Abu Dhabi. That business became Globalfoundries.

The unnamed executive told Chiesi about the transaction in September 2008, ahead of the announcement of the deal, according to court documents. The executive said there was a 99 percent chance that the agreement would be disclosed before earnings were announced -- a prediction that came true, prosecutors said. On Oct. 7, 2008, AMD said it would spin off its manufacturing arm as part of an $8.4 billion investment from the Abu Dhabi government. It reported earnings on Oct. 16.

‘Gonna Shock’

“You know, we’re gonna shock the hell out of everybody,’” the AMD executive told Chiesi, according to a transcript of a Sept. 16, 2008, conversation included in court documents.

Ruiz declined to comment, said Jon Carvill, a spokesman for Sunnyvale, California-based Globalfoundries. The company also declined to comment on the matter, which occurred before Globalfoundries was formed, Carvill said. Separate requests for comment left on Ruiz’s office phone and with his assistant weren’t returned. He also didn’t respond to e-mail.

Ruiz, 63, hasn’t been charged with wrongdoing in the case, and prosecutors don’t say he profited from insider trading. He is the highest-ranking executive tied to the Galleon case, which is the largest investigation to target hedge funds. Rajaratnam and Chiesi, both based in New York, were arrested Oct. 16 along with four others, including International Business Machines Corp. executive Robert Moffat and Rajiv Goel, who helped direct investments at Intel Corp., AMD’s chief rival.

Galleon and New Castle Funds LLC are accused of making $20 million on illegal trades of stocks including Armonk, New York- based IBM, Intel of Santa Clara, California, and Google Inc. in Mountain View, California.

‘Outside the Norm’

AMD declined to comment on the investigation, said Drew Prairie, a spokesman for the company, which is also based in Sunnyvale. “We are continuing to evaluate the matter and we are not aware of any allegation of criminal misconduct on the part of AMD or any current or former employees.”

“This is outside the norm,” said James Balassone, executive in residence at the Markkula Center for Applied Ethics at Santa Clara University in California. “Silicon Valley does have a reputation of maintaining and trying to exploit close relationships. But it’s been my personal experience that the high-level executives, lawyers and bankers -- I have found them to be very tight-lipped.”

Janice Oh, a spokeswoman for the U.S. attorney’s office in Manhattan, declined to comment, as did John Nester, a spokesman for the Securities and Exchange Commission. Charles Miller, a spokesman at the Justice Department, didn’t return a call after hours seeking comment.

AMD fell 30 cents, or 5.8 percent, to $4.85 at 4 p.m. in New York Stock Exchange composite trading. The shares have more than doubled this year.

Chiesi’s Role

Robert Weisberg, a professor specializing in criminal law and white-collar crime at Stanford Law School, said Ruiz may be cooperating with the investigation or may be deemed not to have violated the law.

It’s possible Ruiz shared information with Chiesi under legitimate, confidential circumstances, Weisberg said. In that case, he said, Chiesi may have used the information improperly, leading her to face additional charges of misappropriation, Weisberg said. Chiesi has denied wrongdoing.

Ruiz has spent his career at some of the biggest companies in the semiconductor industry. A Mexican immigrant, he worked at Texas Instruments Inc. before moving to Motorola Inc., where he became the head of its semiconductor division. Jerry Sanders, who founded AMD in 1969, hired Ruiz in 2000 to groom him as a successor.

Long Walk

Ruiz got bachelor’s and master’s degrees in electrical engineering from the University of Texas at Austin and a doctorate in engineering in 1973 from Rice University in Houston. He was born in Piedras Negras, Mexico, according to Rice’s Web site.

He attended high school in the South Texas town of Eagle Pass. He walked 45 minutes each way to school and graduated as valedictorian of his senior class, according to Rice’s biography of Ruiz.

Ruiz became AMD’s chief in 2002. Under his tenure, AMD enjoyed some of its biggest gains against industry leader Intel, winning customers in the profitable server-chip market. By 2008, AMD had fallen behind Intel again. It also was struggling under the burden of debt racked up in the $5.4 billion purchase of ATI Technologies Inc., a graphics-chip maker.

Abu Dhabi Deal

Ruiz’s solution to the setback was a strategy he dubbed “asset smart,” which he began touting to investors and analysts. He mentioned the idea publicly on at least three occasions in 2008 -- on Jan. 17, April 17 and July 17 -- as a way to avoid spending billions of dollars on chip plants.

The culmination of that strategy emerged in October of that year. Abu Dhabi said on Oct. 7 that it would pay AMD $700 million for a stake in a new company, later named Globalfoundries, that would own two plants in Germany and build another in New York.

The new company assumed $1.2 billion of AMD’s debt. Abu Dhabi agreed to spend as much as $6 billion to expand Globalfoundries’ factories and contribute an additional $1.4 billion in operating capital. Abu Dhabi also agreed to pay $314 million to double its stake in AMD to 19 percent. The shares rose 8.5 percent that day.

No Profit

Chiesi was working as a consultant at New Castle Funds, a former Bear Stearns hedge fund, when she spoke with the AMD executive, according to prosecutors. Chiesi directed the fund to acquire shares of AMD ahead of the spinoff announcement, they said. The fund didn’t profit from the timing, though, because the financial crisis deepened in September and October, dragging down stock prices, prosecutors said.

Alan Kaufman, the attorney for Chiesi, said in an interview this month that his client was “shocked” at her arrest and will plead innocent.

Richard Mintz, a U.S.-based spokesman for Mubadala Development Co., the investment arm of the Abu Dhabi government, declined to comment.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

Last Updated: October 28, 2009 16:17 EDT