Raj Rajaratnam of Galleon Group gets 11 years for insider trading

Raj Rajaratnam, the founder of the Galleon Group family of hedge funds, was sentenced on Thursday to 11 years in prison for his role in a huge insider trading case.

That is the longest sentence ever handed out for insider trading. Previously, the record was ten years—held by another Galleon employee, Zvi Goffer, and Hafiz Muhammad Zubair Naseem, a former Credit Suisse banker sentenced in 2008.

Prosecutors had sought a sentence of up to more than 20 years in prison, while Rajaratnam's lawyers had asked for no more than 8 years.

Rajaratnam was convicted in May on several charges of insider trading and conspiracy.

Rajaratnam, who headed Galleon Management, was convicted in May on 14 counts of conspiracy and securities fraud for illegally using inside information to trade in stocks such as Goldman Sachs and Intel. The trading generated profits or avoided losses of $72 million, the government estimated.

The sentence was substantially less than the government sought. In an August court filing, the Justice Department proposed a prison sentence of 19 years and seven months to 24 years and five months. Such a term was warranted to “provide just and fair punishment for perhaps the worst insider trading offender (who has been caught to date) in history, and deter others,” the Justice Department wrote.

To build its case against Rajaratnam, the government used tactics traditionally associated with investigations of violent offenses, such as drug dealing and organized crime. Though Rajaratnam did not testify at his trial, the prosecution made extensive use of secretly made recordings of him talking to his associates.

According to the government, Rajaratnam gathered inside information about pending corporate deals and earnings announcements from an array of tipsters including a Goldman Sachs board member, a senior partner at the consulting firm McKinsey & Co., and an employee at another hedge fund.

Rajaratnam, who is in his 50s, will join a list of high-profile, white-collar financial figures sent to prison, including former Enron executive Jeffrey Skilling, former WorldCom executive Bernard Ebbers and Ponzi scheme mastermind Bernard Madoff.

The insider trading case was the most prominent of its kind since Ivan Boesky was convicted a generation ago.

Two Galleon Defendants Are Cooperating in U.S. Probe

(Bloomberg) -- Tom Hardin, the ex-Lanexa Global Management trader referred to as “Tipper X” in court papers in the Galleon Group insider-trading case, and a second man pleaded guilty and agreed to cooperate with the government’s probe, U.S. prosecutors said today.

Hardin pleaded guilty in federal court in New York to conspiracy and securities fraud on Dec. 21, according to a plea agreement and criminal information unsealed today.

Franz Tudor, a former Galleon trader, pleaded guilty on Oct. 29, 2009, to conspiracy and securities fraud, according to his plea agreement, which was also unsealed today.

Both men face as long as 25 years in prison, prosecutors in the office of Manhattan U.S. Attorney Preet Bharara said in court papers. Prosecutors will submit letters to the judge who sentences the men, asking for leniency based on the level of cooperation both provided in the government’s probe, according to the plea agreements.

Larry Krantz, a lawyer for Hardin, declined to comment. Edgardo Ramos, a lawyer for Tudor, didn’t immediately return a voice-mail message seeking comment after regular business hours today.

More than 20 people have been charged in two overlapping insider trading cases involving Galleon Group founder Raj Rajaratnam. Hardin and Tudor are the 13th and 14th people to plead guilty, with most of those agreeing to cooperate with prosecutors and testify against others.

SEC Lawsuit

Hardin, a former managing director at hedge fund investment adviser Lanexa, also was sued today by the U.S. Securities and Exchange Commission. The SEC said in an e-mailed statement that insider trading involving two takeovers and an earnings announcement produced profits at Lanexa of more than $950,000.

In separate complaints, the SEC said it sued Hardin, Lanexa and Tudor, who had also been a trader at Schottenfeld Group LLC, for insider trading involving acquisitions producing profits of about $715,000.

“When greed leads hedge funds and other market professionals to illegally trade on inside information, the SEC will take aggressive action,” Robert Khuzami, director of the SEC’s enforcement division, said in the statement.

Rajaratnam was arrested in October 2009, accused of earning millions of dollars from stock trades made with inside information from corporate officials and hedge fund executives.

Google, Kronos

Hardin traded securities of Hilton Worldwide Inc., Google Inc. and Kronos Worldwide Inc. based on “material nonpublic information” that he allegedly received from Roomy Khan, the SEC said in the statement. According to the criminal information, Hardin got tips from Khan and also from Gautham Shankar, a former trader at Schottenfeld Group, who pleaded guilty and is cooperating with prosecutors.

Khan, a former Intel Corp. executive, last month agreed to pay $1.9 million including interest to settle the SEC’s case against her. She pleaded guilty in a related criminal insider trading case and is cooperating with the government in a bid for leniency.

The criminal cases are U.S. v. Thomas Hardin, U.S. v. Franz Tudor, 09-cr-01057, and U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan). The civil case is SEC v. Galleon, 09-cv-08811, U.S. District Court, Southern District of New York (Manhattan).

Berkshire Hathaway investment in Goldman Sachs 'part of Galleon probe'

Berkshire Hathaway's $5 billion investment in Goldman Sachs is being probed as part of the Galleon Group insider trading ring investigation, it has been reported.

Galleon Group founder Raj Rajaratnam was arrested last year in allegations that claim he was the center of a massive insider trading scam.

Last month, a court filing related to the case stated that Mr Rajaratnam and his alleged co-conspirators had been trading on information involving Goldman Sachs.

An inside source has told the Wall Street Journal government investigators are now looking into claims that Goldman Sachs director Rajat Gupta passed on information to Mr Rajaratnam about Berkshire Hathaway's investment before the deal was made public.

Mr Gupta has not been charged in relation to the case and his lawyer Gary Naftalis said: "Rajat has neither violated any law nor done anything else improper.

"He has always conducted himself with integrity in his business, philanthropic and personal life."

The allegations mark a bad month for Goldman Sachs, which has also been accused of fraud by the Securities and Exchange Commission in a separate case.

It is claimed the bank sold an investment package to investors that was designed to fail.

Goldman Sachs board member quizzed over insider trading

Rajat Gupta, a member of Goldman Sachs’ board of directors, is under investigation for allegedly providing insider information to the Galleon Group founder Raj Rajaratnam, a newspaper report has claimed.

Unnamed sources close to the matter told Wall Street Journal that Mr Gupta, thought to be an associate of Mr Rajaratnam, is being investigated.

Mr Rajaratnam is one of 22 traders charged over alleged involvement in what is thought to be one of the largest insider trading rings of all time.

A recent letter, filed in court last week, revealed that stocks in Goldman Sachs, along with Cisco and AT&T, were among those illegally traded by the Galleon Group founder and his accomplices.

A spokesman for the member of Goldman Sachs’ board told the news provider: “Mr Gupta is unaware of any examination of any such issue and has done nothing wrong.”

No criminal charges have been filed against the banker.

Meanwhile, Mr Rajaratnam and his colleague Danielle Chiesi both deny the charges against them.

A trial is expected to begin at a federal court in New York later this year.

More Wore Wires in Bid to Investigate Inside Trades in Galleon Case

The Wall Street Journal- Federal prosecutors in Manhattan equipped several cooperating witnesses with recording devices to try to obtain information about targets in the Galleon insider-trading probe, people familiar with the matter say. Among them is Franz Tudor, a former Galleon Group hedge-fund trader, the people familiar with the matter say. Mr. Tudor, 36 years old, made recordings last year in an attempt to extract information from two friends and colleagues who are defendants charged in an insider-trading conspiracy, Zvi Goffer (left) and Michael Kimelman, the people say.

more at http://online.wsj.com/article/SB10001424052748704145904575112132401351258.html

McKinsey director paid $2.6m for role in Rajaratnam insider trading

Anil Kumar, a former director at management consultancy McKinsey & Co, has admitted to his involvement in the Galleon Group insider trading ring.

As part of his guilty plea, Kumar said that he had received $1.75 million by Galleon Group founder Raj Rajaratnam for inside information about clients of McKinsey.

Kumar added that he had received a total of around $2.6 million for his role in the scam.

He said he received payment for his services from the Galleon Group via a Swiss bank account – money he then invested in the hedge fund using an account in the name of one of his employees at home.

Kumar met Rajaratnam in the 1980s when the pair attended the Wharton School of Business at the University of Pennsylvania.

After admitting his guilt, Kumar offered an apology to his former colleagues.

"I understood Mr Rajaratnam was going to trade securities. I understood that my conduct was unlawful," he said.

"To all my colleagues whose trust I have betrayed, I am sorry."

The insider trading relating to Kumar's case centered around the acquisition of ATI Technologies by Advanced Micro Devices (AMD).

Kumar's claims have been denied by lawyers for Rajaratnam, who insist no such payments were made.

John Dowd, Rajaratnam's lawyer, said that Galleon Group's making of investments based on a potential merger did not mean it had insider knowledge of the deal.

"An analyst's prediction that AMD would acquire ATI was widely reported in the press more than seven weeks before the acquisition was announced," he stated.

In November last year, Hector Ruiz, the chairman of AMD, resigned from his role at the company after it was alleged in widespread newspaper reports that he had also passed on secret information about the company to the insider trading ring.

However, no charges have been bought against Mr Ruiz by US prosecutors.

Raj Rajaratnam made at least $36 million from insider trading

Raj Rajaratnam, the founder of Galleon Group, made "at least" $36 million in profits from his insider trading ring, US prosecutors have claimed.

This is double the $17 million amount initially alleged when Mr Rajaratnam was first arrested in October last year.

He is said to have made the money through stock trades that were aided by inside information by hedge fund and company executives.

The claim was made in a court filing opposing an application made by Mr Rajaratnam for a reduction in his $100 million bail, reports Bloomberg.

A total of 21 people have been arrested in connection with two overlapping insider trading rings, with six pleading guilty so far.

Mr Rajaratnam is due to appear in court on Friday (January 8th 2010) in relation to the bail plea.

Last month, Mr Rajaratnam and co-defendant Danielle Chiesi both entered not guilty pleas on the charges against them.

Raj Rajaratnam of Galleon Group, ex-Bear Sterns directors, others charged in insider trading

In a case echoing the scandals of the 1980s, federal authorities exposed what they claim is the biggest insider-trading ring in a generation -- a conspiracy in which a hedge-fund kingpin and executives at blue-chip firms including IBM and Intel allegedly connived to profit on Google and other big-name stocks.

At the center was Raj Rajaratnam, founder of Galleon Group, a New York-based fund firm that manages $3.7 billion. A native of Sri Lanka, he spent years carving a reputation as a meticulous investor in technology stocks, building a fortune estimated at $1.5 billion.

Rajaratnam, 52, faces 13 fraud and conspiracy counts, many of which carry 20-year maximum sentences. Under federal sentencing guidelines, he faces 10 years in prison if convicted at trial, Assistant U.S. Attorney Josh Klein said in court yesterday. Galleon Partners, based in Manhattan, has offices in London, Singapore, Mumbai, and Menlo Park, California.

$20 Million Scheme

Also arrested in the alleged $20 million scheme were Rajiv Goel, who worked at Intel Capital as a director in strategic investments, Anil Kumar, who worked as a director at McKinsey & Co., and IBM Corp. executive Robert Moffat. The former officials at Bear Stearns Asset Management are Danielle Chiesi and Mark Kurland, who were affiliated with the firm’s New Castle Partners, which managed about $1 billion. Prosecutors called it the biggest insider trading case involving hedge funds.

“The defendants operated in a world of, you scratch my back, I’ll scratch your back,” Bharara said at a press conference yesterday. “Greed, sometimes, is not good.”

He said the prosecution is the first time wiretaps have been used to target insider trading, calling the case “unprecedented.”

Galleon, which started as a hedge fund firm focusing on technology and health-care stocks, grew to more than $5 billion in 2001 from its start in January 1997. Rajaratnam founded Galleon with three other colleagues from Needham & Co., an investment bank that focused on technology and health-care companies.

Oversaw $2.6 Billion

Galleon Management, the company’s advisory business, oversaw more than $2.6 billion at the end of March, mostly on behalf of hedge funds, according to regulatory filings it submitted to the U.S. Securities and Exchange Commission at the time. Rajaratnam held a 50 percent to 75 percent controlling stake, according to the documents.

#559 on Forbes World's Billionaires list

http://www.forbes.com/lists/2009/10/billionaires-2009-richest-people_Raj-Rajaratnam_RUQ2.html

Net Worth:$1.3 bil
Fortune:self made
Source:hedge funds
Age:51
Country Of Citizenship:United States
Residence:New York, New York
Industry:Finance
Education:University of Sussex, Bachelor of Arts / Science, University of Pennsylvania Wharton School, Master of Business Administratio
Marital Status:married, 3 children

Hedge fund guru's tech focus helped shore up his returns: flagship fund down 17% in 2008. Father ran Asian operations for singer Sewing Co. Sri Lanka native studied engineering at U. of Sussex in England, then M.B.A. at Wharton 1983. Early career at investment banking boutique Needham & Co. Became president in 1991. Founded hedge fund Galleon Group 6 years later; making big bets on health care, technology companies. Annual returns: 22% net of fees since inception. Today firm is believed to manage $6 billion across 6 funds.