6 Charged in $20M Insider Trading Case

Billionaire Raj Rajaratnam, Galleon Group's Founder, among Those Arrested in Alleged Hedge Fund Conspiracy

(AP)  Last Updated at 3:17 p.m. Eastern

One of America's wealthiest men was among six hedge fund managers and corporate executives arrested Friday in a hedge fund insider trading case that prosecutors say reaped more than $20 million in illegal profits and should be a wake-up call for Wall Street.

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 trade based on insider information about several publicly traded companies, including Google Inc.

U.S. Attorney Preet Bharara, putting total profits in the scheme at $20.6 million, told a news conference it was the largest hedge fund case ever prosecuted and marked the first use of court-authorized wiretaps to capture conversations by suspects in an insider trading case.

He said the case should cause financial professionals considering insider trades in the future to wonder whether law enforcement is listening.

"Greed is not good," Bharara said. "This case should be a wake-up call for Wall Street."

Robert Khuzami, director of enforcement at the Securities and Exchange Commission, said the charges show Rajaratnam's "secret of success was not genius trading strategies."

"He is not the master of the universe. He is a master of the Rolodex," Khuzami said.

Rajaratnam, 52, was ranked No. 559 by Forbes magazine this year among the world's wealthiest billionaires, with a $1.3 billion net worth.

Rajaratnam - born in Sri Lanka and a graduate of University of Pennsylvania's Wharton School of Business - has been described as a savvy manager of billions of dollars in technology and health-care hedge funds at Galleon, which he started in 1996. The firm is based in New York City with offices in California, China, Taiwan and India. He lives in New York.

According to a criminal complaint filed in U.S. District Court in Manhattan, 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.

A spokesman for Rajaratnam did not immediately return a phone call for comment Friday.

The timing of the arrests might be explained by a footnote in the complaint against Rajaratnam. In it, an FBI agent said he had learned that Rajaratnam had been warned to be careful and that Rajaratnam, in response, had said that a former employee of the Galleon Group was likely be wearing a "wire."

The agent said he learned from federal authorities that Rajaratnam had obtained a plane ticket to fly from Kennedy International Airport to London on Friday and to return to New York from Geneva, Switzerland next Thursday.

Also charged in the scheme are Rajiv Goel, 51, of Los Altos, Calif., a director of strategic investments at Intel Capital, the investment arm of Intel Corp., Anil Kumar, 51, of Santa Clara, Calif., a director at McKinsey & Co. Inc., a global management consulting firm, and Robert Moffat, 53, of Ridgefield, Conn., senior vice president and group executive at International Business Machines Corp.'s Systems and Technology Group.

The others charged in the case were identified as Danielle Chiesi, 43, of New York City, and Mark Kurland, 60, also of New York City.

According to court papers, Chiesi worked for New Castle, the equity hedge fund group of Bear Stearns Asset Management Inc. that had assets worth about $1 billion under management. Kurland is a top executive at New Castle.

A criminal complaint filed in the case shows that an unidentified person involved in the insider trading scheme began cooperating and authorities obtained wiretaps of conversations between the defendants.

In one conversation about a pending deal that was described in a criminal complaint, Chiesi is quoted as saying: "I'm dead if this leaks. I really am. ... and my career is over. I'll be like Martha (expletive) Stewart."

Stewart, the homemaking maven, was convicted in 2004 of lying to the government about the sale of her shares in a friend's company whose stock plummeted after a negative public announcement. She served five months in prison and five months of home confinement.

Prosecutors charged those arrested Friday with conspiracy and securities fraud.

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

A separate criminal complaint in the case said Chiesi and Moffat conspired to engage in insider trading in the securities of International Business Machines Corp.

According to a criminal complaint in the case, Chiesi and Rajaratnam were heard on a government wiretap of a Sept. 26, 2008 phone conversation discussing whether Chiesi's friend Moffat should move from IBM to a different technology company to aid the scheme.

"Put him in some company where we can trade well," Rajaratnam was quoted in the court papers as saying.

The complaint said Chiesi replied: "I know, I know. I'm thinking that too. Or just keep him at IBM, you know, because this guy is giving me more information. ... I'd like to keep him at IBM right now because that's a very powerful place for him. For us, too."

According to the court papers, Rajaratnam replied: "Only if he becomes CEO." And Chiesi was quoted as replying: "Well, not really. I mean, come on. ... you know, we nailed it."

The criminal complaints in the case also captured what authorities said were efforts by the defendants to hide their conversations from authorities.

In one conversation, Chiesi was heard telling Rajaratnam that she was "glad that we talk on a secure line, I appreciate that," to which Rajaratnam replied: "I never call you on my cell phone," the complaint said. It added that Chiesi said she was "nervous" about being investigated.

[nextgenman09]

"a wake up call for Wall St"!? These freaks don't live in reality, I'm sure trying to "wake them up" is a waste of time. We are doomed even if all of the embarrassingly stupid economists who missed the biggest financial disaster since the Great Depression yammer that they've decided we're out of the recession now.

[spaceatoms]

I thought the bailouts were suppose to stop all of this, this country is toast!

[formrusmcsgt]

This just proves the old saying that "some never have enough".....

[geewheeez]

Clean them all out...

[cy4466]

Our politicians get to rob us blind every day, and we're rounding up folks who were on the take for a drop in the bucket.

Well, I guess it's nice to know we're not in total anarchy..yet.

[fedup12]

Gettin there tho.

Those with the most guns win!

[skepticalJM]

A drop in the bucket???

[skepticalJM]

Did someone say: "Greed is not good,"? All of Capitalism is greed.

Confiscate all their wealth, and start a fund to offer FREE Health Care for all Americans paid for by these none-greedy capitalists.

[geminispyder-2009]

-In one conversation, Chiesi was heard telling Rajaratnam that she was "glad that we talk on a secure line, I appreciate that," to which Rajaratnam replied: "I never call you on my cell phone," the complaint said.

LOL... the line was apparently not secure enough. You'd think for a billionaire and the fact that both of these people are based in New York City, they could afford to drive to a more secure place to have their how-to-defraud-wall-street conversations.

However, I could understand why Rajaratnam wouldn't want to travel alot. Looking at his picture, he should've spent a few grand of his billion-dollar net worth on liposuction and a Stairmaster for his fat arse.

[credibility2]

And what makes you think that these greedy criminals are all Christian and all Republican? I'm glad criminals like this are eventually apprehended. Now if we could just round up all of the deadbeat slacker criminal hacks that expect their government to give them handouts, especially the criminal illegal aliens, we'd be so much better off than we are at the present time.

[Questionews]

credibility2

You're dealing with the Ol Psychocharly.
He only has about ten complete thoughts & they all have the same theme. (Bash, bash & then step back & power bash) But much like how a broken clock is accurate twice a day, it's only a matter of math that he's correct about anything. He does connect once in awhile though. He's not much actual debate, but is very consistent in his message.

[Questionews]

He doesn't even look Jewish.
Dang! Those cunning Hebrews are getting trickier all the time.

[cadred]

Take out the over the top greed and endemic dishonesty and capitalism becomes a beautiful thing. As it is now it takes on a slimy maloderous countenance.

[stillwaters6]

rich get richer and the poor get more screwed.

Michael Moore's Capitalism, anybody???

[jtdev1]

Wall street has always been corrupt.

These fools just did it out in the open.

Insider trading goes on all the time by everyone who can get any information.

[all_father]

150 years ago Wall Street was becoming an integral and important part of the industrial revolution. For 100 years it helped build America into the powerhouse it was. Today it is a place where the gamblers go to play with other people's money. It is a place where greed trumps common sense and common decency. Working Americans would be crazy to trust their money to Wall Street.

[missme4]

Hey look! Another wakeup call for wall street! Maybe soon americans will get a wake up call telling them that wall street is not about to wake up.

[timdgrim]

The 'Wall Street Crime Syndicate' continues on it's merry little path of greed. Lock them up and throw away the key.