Raj Rajaratnam, a billionaire investor and co-founder of Galleon Group LLC, has been ordered to pay a $10 million fine and serve 11 years in jail for his key role in an insider trading scam that resulted in $63.8M in illegal profits. He must now forfeit $53.8M.
A jury had found the hedge fund tycoon guilty of nine counts of securities fraud and five counts of conspiracy. Rajaratnam would obtain illegal tips from bankers, executives, traders, consultants, and directors of public companies (Goldman Sachs is one). He would then use that insider information to make trades prior to public announcements about mergers, forecasts, earnings, and spinoffs involving a number of companies, including Hilton Hotels, Integrated Circuit, Akamai, and Xilinix)
Rajaratnam’s attorneys are planning to appeal. For now, however, they are requesting that he be confined at the Butner Federal Correctional Complex, which is where Bernard Madoff is in jail. Madoff was sentenced to 150 years behind bars for his multibillion-dollar Ponzi scam.
Rajaratnam, who is originally from Sri Lanka was educated in England and the US. He established the Galleon hedge fund in the 1990’s and it became one of the biggest in the world. In 2008, Galleon was managing about $7 billion.
Federal securities investigators began to suspect trouble when, in the Rajaratnam gave the SEC documents for another investigation into the activities of his younger brother-no charges were ever brought t here-a text message was included from an ex-Intel Corp. employee warning to hold off on purchasing Polycom’s stock. The former employee, Rommy Khan, was already suspected of giving out insider information.
In 2007, Khan consented to help the authorities with their probe. He and several others served as cooperating witnesses that helped the government convict Rajaratnam, who was arrested in 2009.
The 11-year sentence against him is shorter than the 24 years and five months that prosecutors wanted. That said, it is still the longest prison sentence ever issued for insider trading.
Still under investigation in connection with the scam is Rajat Gupta, who used to work as a Goldman Sachs director. According to the Wall Street Journal and Bloomberg, criminal charges against him seem likely. Prosecutors consider him a “co-conspirator” in the insider trading case against Rajaratnam.
The SEC, which dropped its civil administrative proceeding against Gupta, plans to refile its charges in federal court. Meantime, Kamal Ahmed, who was also linked to the insider trading scam, has been fired by Morgan Stanley because he had disclosed confidential information. The government has not accused him of wrongdoing.
The SEC also filed a number of securities lawsuits against at least two dozen individuals and businesses in light of the Galleon investigation.
Trader Draws Record Sentence, The Wall Street Journal, October 14, 2011
U.S. Prosecutors ‘Close to Charging’ Rajat Gupta, Bloomberg, September 20, 2011
Accused Rajaratnam Tipster Fired By Morgan Stanley, FIN Alternatives, October 7, 2011
More Blog Posts:
Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011
A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices’ Confidential Data, Stockbroker Fraud Blog, December 16, 2010
3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010
To schedule your free case evaluation, contact our stockbroker fraud law firm today. Shepherd Smith Edwards & Kantas LTD LLP represents investors throughout the US.