World’s richest Sri Lankan, two Indian Americans charged with insider trading


New York : Billionaire hedge fund founder Raj Rajaratnam, considered the richest Sri Lankan in the world, and two Indian American executives of top US companies are among six people charged with the largest ever insider trading in this country.

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At the centre of the case filed by federal prosecutors for the Southern District of New York Friday are Rajaratnam, 52, his Galleon hedge fund and two executives from hedge fund New Castle, which was a unit of Bear Stearns Asset Management before Bears Stearns Cos collapsed in 2008, but is still in operation.

One of the criminal complaints accuses Rajaratnam of conspiring with Intel Capital treasury department managing director Rajiv Goel and Anil Kumar, a director of McKinsey & Co. The alleged offences took place over three years starting in January 2006.

Galleon had as much as $7 billion under management, the complaint said.

“This is not a garden-variety insider trading case,” Preet Bharara, Indian-American US Attorney for Manhattan, said at a news conference. He said the scheme made more than $20 million in illegal profits over several years.

“This case should serve as a wake-up call to Wall Street and to every hedge fund manager,” said Bharara. “These people were privy to inside information, but they didn’t know one secret, that we were listening.”

Bharara compared the investigation to those used against the mafia and drug cartels.

Three others charged by prosecutors were Mark Kurland, the president of New Castle Partners, another large money manager; Danielle Chiesi, a former Bear Stearns executive who now works at New Castle; and Robert Moffatt, an executive at IBM.

Rajaratnam was later ordered to post a $100 million bond as part of his bail conditions, though prosecutors argued for no bail because he posed a flight risk. Anil Kumar was released on a $5 million bond.

Rajaratnam is accused of insider trading in the stocks of several companies, including Hilton Hotels, Google, People Support Advanced Micro Devices, Clearwire and Akamai. He was charged with four counts of conspiracy and nine counts of securities fraud.

The prosecutors’ case is built on both statements from an unnamed cooperating witness, who has agreed to plead guilty, and from the recording of four conversations between the witness and Rajaratnam. The unnamed witness began conversations with the Federal Bureau of Investigation in 2007, which led to the phone taps.

According to the complaint, Rajaratnam partnered with the likes of Goel and Kumar, who supplied information about their portfolio companies or clients, and in turn made profitable trades for these associates.

The unnamed cooperating witness is alleged by prosecutors to have also obtained insider information, including from an analyst at Moody’s Investors Service covering Hilton (and who was paid $10,000) and an unnamed employee at Market Street Partners, an investor relations firm working for Google.

Law-enforcement officials said Friday that Rajaratnam’s success appeared built not on “genius trading strategies”, but on his insider-trading connections.

Rajaratnam is listed as No. 551 on Forbes’s 2009 list of the world’s richest people, with an estimated net worth of $1.3 billion.