IBM placed senior executive Robert Moffat on leave of absence after he was arrested in the largest ever hedge fund insider-trading scheme.

Moffat, senior vice president and head of International Business Machines Corp.'s systems and technology group, was charged with passing on insider information to a hedge fund.

He had worked for IBM since 1978 and was one of several executives who analysts said could have been a possible heir to IBM Chief Executive Sam Palmisano.

In view of a U.S. federal investigation into his personal activities, Mr. Moffat has been placed on temporarily leave of absence and is no longer serving as an officer of IBM, said company spokesman Edward Barbini.

Moffat is accused of passing on information about IBM ahead of the company's quarterly results, as well as those of Sun Microsystems while IBM was looking at its books for a possible acquisition. The FBI said Moffat was one of the IBM executives conducting due diligence on Sun.

He has also been charged with giving insider information on Advanced Micro Devices Inc , obtained through IBM's business negotiations with the company.

Moffat, released on bail, is pleading innocent, according to his lawyer.

There's neither any evidence or claim that he profited in connection with the trades referenced in the complaint, the attorney, Kerry Lawrence, told Reuters. He did not.

IBM named Rodney Adkins as acting head of the systems and technology group. Adkins will also oversee development and manufacturing, the company said.

The insider trading scandal centers on Galleon Group founder Raj Rajaratnam. Executives at leading chipmaker Intel Corp and management consulting firm McKinsey & Co. were also implicated.

The involvement of a top executive at one the bluest of blue-chip firms has shocked analysts, although some noted IBM was not without problems. The U.S. Justice Department has recently begun investigating allegations that it abused its dominance in the mainframe servers market to squeeze rivals.

IBM shares finished up 1.17 percent at $123.06 on Monday. They had fallen nearly 5 percent on Friday after the company announced quarterly results that beat most expectations but disappointed investors who were looking for stronger contract signings.

(Reporting by Ritsuko Ando; Editing by Derek Caney and Steve Orlofsky)

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