Feeds

Galleon hedge fund founder convicted on all 14 counts

Jury throws the book at man that sunk IBM heir apparent

Boost IT visibility and business value

Loose lips sink ships – and billionaire hedge fund tycoons that engage in insider trading.

The eight women and four men sitting on the jury at the trial of Raj Rajaratnam, founder of the Galleon Group hedge fund which authorities said was at the center of an extensive insider trading network specializing in high tech companies, have found him guilty of all fourteen counts that the US Attorney Preet Bharara threw at him.

The charges concerned illegal trades involving Clearwire, Akamai Technologies, PeopleSupport, Google, Advanced Micro Devices, Sun Microsystems, and IBM. Insider information was obtained from executives at Advanced Micro Devices, IBM, Intel, and McKinsey & Co.

The expectation had been that the man behind Galleon, a $7bn hedge fund that subsequently shut down after the charges were leveled against Rajaratnam, would be able to wiggle out of some of the charges, which included five counts of conspiracy (with up to five years of prison time associated with each count) and nine charges of securities fraud (each with as much as 20 years possible).

But the jury, which had one juror replaced last week, deliberated for a total of eleven days and threw the book at Rajaratnam.

Rajaratnam was among 19 people caught by 45 wiretapped conversations recorded by the Federal Bureau of Investigation, which detailed how information flowed from insiders at tech companies to Rajaratnam directly or to third parties who were connected to Rajaratnam. Such wiretaps have been traditionally used to catch Mob kingpins and other shady underworld criminals, and this was the first time that the US government has used wiretaps in an insider trading case.

The initial charges were levied against Rajaratnam and eight others, including Danielle Chiesi, who worked for the New Castle hedge fund, and Bob Moffat, the former general manager of IBM's Systems and Technology Group, in October 2009.

Federal prosecutors widened the case a month later, with 14 people being charged in connection with the insider trading ring.

Most have settled with the government and turned state's evidence against Rajaratnam.

Rajaratnam is alleged to have illegally profited from insider information to the tune of $63.8m, which, frankly, would seem to be pocket change for a hedge fund with $7bn in assets under management.

The US Attorneys Office for the Southern District of New York and the FBI did not hold a joint press conference today, and they are expected to release a statement soon.

According to various reports, the Feds are asking for Rajaratnam to serve between 15.5 and 19.5 years of prison time; sentencing is scheduled for July 29. Rajaratnam will remain free until sentencing under an arrangement between his defense and the Feds. Rajaratnam has resisted any hint of a plea bargain in order to enhance his chances when he appeals the ruling by the jury, as he is expected to do after sentencing.

The repercussions from the Galleon insider trading case will be significant. Expert network referrals, which are at the center of how hedge funds get information on which they make their trades, are already under pressure and participation in them will no doubt dry up now that the penalties for being accused of insider trading are evident. Ditto for executives who work at large companies who talk out of turn.

You can expect publicly traded companies to lock down their execs and show no tolerance for any leaks of information. Moreover, you can expect the Feds to pursue more of these insider trading cases and get approval for wiretaps to catch those who don't play by the rules. ®

Build a business case: developing custom apps

More from The Register

next story
Kate Bush: Don't make me HAVE CONTACT with your iPHONE
Can't face sea of wobbling fondle implements. What happened to lighters, eh?
Video of US journalist 'beheading' pulled from social media
Yanked footage featured British-accented attacker and US journo James Foley
Caught red-handed: UK cops, PCSOs, specials behaving badly… on social media
No Mr Fuzz, don't ask a crime victim to be your pal on Facebook
Ballmer leaves Microsoft board to spend more time with his b-balls
From Clippy to Clippers: Hi, I see you're running an NBA team now ...
Online tat bazaar eBay coughs to YET ANOTHER outage
Web-based flea market struck dumb by size and scale of fail
Amazon takes swipe at PayPal, Square with card reader for mobes
Etailer plans to undercut rivals with low transaction fee offer
Assange™: Hey world, I'M STILL HERE, ignore that Snowden guy
Press conference: ME ME ME ME ME ME ME (cont'd pg 94)
Call of Duty daddy considers launching own movie studio
Activision Blizzard might like quality control of a CoD film
US regulators OK sale of IBM's x86 server biz to Lenovo
Now all that remains is for gov't offices to ban the boxes
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Top 10 endpoint backup mistakes
Avoid the ten endpoint backup mistakes to ensure that your critical corporate data is protected and end user productivity is improved.
Top 8 considerations to enable and simplify mobility
In this whitepaper learn how to successfully add mobile capabilities simply and cost effectively.
Rethinking backup and recovery in the modern data center
Combining intelligence, operational analytics, and automation to enable efficient, data-driven IT organizations using the HP ABR approach.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.