Billionaire Rajaratnam arrested for insider trading in US (Roundup)

Oct 17, 2009, 4:56 GMT

   Washington - Raj Rajaratnam, the Sri-Lankan-born billionaire investor who founded a global hedge fund, was arrested Friday as the central figure in an alleged illegal insider trading scheme.

   He was arrested along with five others including former directors at a Bear Stearns hedge fund, and executives from IBM and Intel Corp.

   They are all suspected in a 20-million-dollar insider trading scheme which federal prosecutors said was the biggest ever fraud case involving hedge funds.

   The charges placed the 52-year-old Rajaratnam as the kingpin in a conspiracy which bridged to the blue chip firms. Rajaratnam is accused of taking up to 18 million dollars from overlapping fraud schemes that involved shares in Google Inc, Plycom Inc, Hilton Hotels Corp and Advanced Micro Devices Inc, the complaint says.

   The federal judge set 100 million dollars bail for Rajaratnam and lower bail for the others, the Wall Street Journal reported.

   In a separate action, the Securities and Exchange Commission (SEC) which regulates Wall Street filed suit against Rajaratnam for insider trading. Contrary to his reputation for genius trading strategies, the SEC said Rajaratnam was 'not a master of the universe, but rather a master of the Rolodex.'

   'He cultivated a network of high-ranking corporate executives and insiders, and then tapped into this ring to obtain confidential details about quarterly earnings and takeover activity,' said SEC director of enforcement Robert Khuzami at the press conference.

   Under US law, corporations whose shares are publicly traded must hew to certain transparency rules. Traders are not to have access to financial information before the company releases it to the public.

   Rajaratnam's fund - the Galleon Group, founded in 1997 - is one of the world's largest hedge funds, with branches in London, Singapore, Mumbai and Menlo Park, California.

   The investor was identified this year by Forbes as the 559th richest person in the world, with a net worth of 1.3 billion dollars, Bloomberg financial news service reported.

   According to the charges, the scheme also involved Rajiv Goel of Intel Capital, Anil Kumar of McKinsey & Co and Robert Moffat of IBM Corp. Two former officials at Bear Stearns Asset Management, Danielle Chiesi and Mark Kurland, who were affiliated with the firm's New Castle Partners, were also arrested.

   Moffat and Kurland were only charged with conspiracy. The other four were charged with both conspiracy and fraud. Rajaratnam faces 13 counts, many of which carry 20-year sentences.

   'The defendants operated in a world of, you scratch my back, I'll scratch your back,' US Attorney Preet Bharara said at a New York press conference. 'Greed, sometimes, is not good.'

   Bharara said investigators used wiretaps for the first time ever in probing insider trading. Wiretaps are normally reserved for organized crime and drug cases.

   The key to the investigation, which began in 2007, was an unnamed co-conspirator who has pleaded guilty in the charges. That person apparently helped record phone conversations with Rajaratnam.

   'A number of the calls intercepted over the wiretap consist of Rajaratnam either providing, receiving or seeking material non-public information about various publicly traded companies,' the complaint said.

   In court documents about a telephone conversation that involved Chiesi, she admits she was afraid of giving certain information.

   'I swear to you in front of God, you put me in jail if you talk,' she said. 'I'm dead if this leaks.'

   Rajaratnam is a high profile philanthropist who helped Sri Lankans after the 2004 tsunami and has donated to other causes in the war- impacted areas of that country.