Thread: People of Indian origin charged in US insider trading case

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People of Indian origin charged in US insider trading case
16 Oct 2009, 2055 hrs IST, AGENCIES
NEW YORK: A billionaire hedge fund boss was among five men and a woman arrested by federal authorities Friday in a hedge fund insider trading
case that prosecutors say reaped $20 million in illegal profits.

Raj Rajaratnam, a partner in Galleon Management and a portfolio manager for Galleon Group, a hedge fund with up to $7 billion in assets under management, was accused of conspiring with others to cause trades based on insider information about three publically traded companies.

Those companies were identified in court papers as Polycom, Hilton Hotels Corp. and Google Inc.

According to the court papers, Rajaratnam obtained insider information and then caused the Galleon Technology Funds to execute trades that earned a profit of more than $12.7 million between January 2006 and July 2007. Other schemes garnered millions more, authorities said.

Five others charged in the scheme included Rajiv Goel, a director of strategic investments at Intel Capital, the investment arm of Intel Corp., Anil Kumar, a director at McKinsey & Co. Inc., a global management consulting firm and Robert Moffat, senior vice president and group executive at International Business Machines Corp.'s Systems and Technology Group.

It was not immediately clear who was representing the lawyers in court appearances scheduled for U.S. District Court in Manhattan later Friday.

Prosecutors charged the defendants with conspiracy and securities fraud.

A news conference was scheduled on Friday afternoon by federal prosecutors and the Securities and Exchange Commission to explain the charges further.

Galleon Group founder Raj Rajaratanam is from Sri Lanka; he is the richest Sri Lankan in the world.

U.S. Charges 6 in Record Insider Trading Case

Friday, October 16, 2009 3:55 PM

NEW YORK - Galleon Group founder Raj Rajaratnam and five others were charged with engaging in the largest ever hedge fund insider-trading scheme, generating profits of more than $20 million over several years, U.S. prosecutors, the FBI and the SEC said Friday.

Insider trading by hedge funds Galleon and New Castle and Intel's Intel Capital unit took place in shares of Hilton Hotels Corp, Google Inc, IBM, Advanced Micro Devices Inc and other stocks, according to two complaints filed in U.S. District Court in New York.

All six accused have been arrested, a spokeswoman for the federal prosecutor's office in Manhattan said. The case could represent an important development in the government's enforcement of securities laws, she said.

"This is not a garden-variety insider trading case," U.S. Attorney Preet Bharara told a news conference. Beyond the scale of the scheme, "It shows that we are targeting white-collar insider trading rings with the same powerful investigative techniques that have worked so successfully against the mob and drug cartels."

He also fired a warning shot for the rest of Wall Street.

"Today, tomorrow, next week, the week after, privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?" he said.

Securities fraud charges carry possible maximum prison sentences of up to 20 years.

SRI LANKA TITAN

One of the criminal complaints accuses Rajaratnam, considered the richest Sri Lankan in the world, of conspiring with Intel employee Rajiv Goel and Anil Kumar, a director of powerful management consulting firm McKinsey & Co. The alleged offenses took place for about three years starting in January 2006.

Galleon had as much as $7 billion under management, the complaint said. Intel Capital is the investment arm of Intel Corp. Officials from Galleon did not return calls seeking comment.

Rajaratnam, born into a family of well-to-do Tamils in the Sri Lankan capital Colombo, is one of the largest investors on the Colombo Stock Exchange.

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The $100 million bail for Galleon's founder sends a major message

Bruce Watson
Oct 19th 2009 at 2:20PM

On Friday, FBI agents arrested Raj Rajaratnam, founder of the Galleon Group Hedge fund, at his Manhattan home. Charged with running an insider trading scheme, he was hit with what may be the biggest bail bond in U.S. history: $100 million. By comparison, Bernie Madoff and Tyco CEO Dennis Kozlowski each paid a relatively paltry $10 million. In fact, Rajaratnam's nearest New York competitor is probably Mikhail Sorodsky, a Brooklyn man who allegedly molested eight women while practicing medicine without a license. His bond was set at $33 million in September.

Some analysts have suggested that Rajaratnam's arrest and huge bail signify that a new sheriff is in town. The Securities & Exchange Commission, whose reputation was left bruised and battered by the Madoff affair, seems to be using this recent arrest to send a message that the government will no longer wink at wrongdoing, including the misuse of nonpublic information.

While the crackdown on insider trading isn't particularly surprising, the government's extensive use of wiretaps and confidential witnesses seems designed to make clear to put a chill into bad guys: The government may be listening in on any line and is prepared to turn any witness.

For any government agency looking to make a high-profile collar, Rajaratnam is a nice big target. Ranked number 236 on Forbes 2009 list of the 400 richest Americans, Rajaratnam ran a firm with an estimated $7 billion in assets, and his personal net worth is calculated at roughly $1.3 billion. Well known for his generosity, he donated large amounts of money to a wide variety of causes -- among them the Tamils Rehabilitation Organization, which the U.S. Treasury has identified as a front for Sri Lanka's Tamil Tigers terrorist group.

Apart from sending a message to Wall Street, Rajaratnam's outsize bond also suggests a turning point in the U.S. justice system, in which courts levy bail on defendants who could be a flight risk or a threat to the community. Basically, the system works like this: A judge decides on a bail amount needed before releasing a defendant from jail while he or she awaits trial. The defendant then hires a bondsman, who posts the sum in return for a 10%-12% nonrefundable deposit. If the defendant fails to show up in court, the bondsman forfeits the bail. To recover his loss, he hires a bounty hunter to retrieve the fugitive; the bounty hunter and bondsman both get their money when they turn in the fugitive.

Something similar to this happened in the Roman Polanski case. Charged with unlawful sexual intercourse in 1977, he chose to leave the country rather than face prosecution. For the last 32 years, the movie director has lived in France, fighting extradition to the U.S. Following his recent arrest in Switzerland, however, it appears that he'll probably be brought back to stand trial in Los Angeles.

Polanski probably didn't require the services of a bondsman because his bail was set at a paltry $2,500. For many defendants, however, the bondsman is a basic part of the judicial process, given that even people charged with relatively routine crimes are often hit with large bail judgments. But there's a limit to how much money bondsmen will put up, and judges have recently shown a growing tendency to use gargantuan bond judgments to ensure that wealthy defendants will finance their own prison release. Madoff, for example, paid his own bail, and he also had to provide the names of friends who would vouch for him. Similarly, Rajaratnam put up his own bail.

This is how bail functions in much of the rest of the world, where bail bondsmen are illegal. In Austria, for example, when banker Julius Meinl V was charged with fraud in early 2009, he was required to put up his entire bail. His bond, which was set at $133 million, was the largest in history, seriously eclipsing the $100 million that Rajaratnam had to put up.

Perhaps the famously competitive Rajaratnam is feeling a little stung.
http://www.dailyfinance.com/2009/10/19/ ... or-messag/

Galleon shutters $3.7 billion hedge fund -- no government bailout required
http://www.dailyfinance.com/2009/10/21/ ... nt-bailou/

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

Peter Cohan
Oct 28th 2009 at 9:30AM

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, including Capital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned

http://www.dailyfinance.com/2009/10/28/ ... or-nothi/#