Raj Rajaratnam and Danielle Chiesi were indicted in indictment alleging 17 counts of securities and wire fraud on Tuesday in the U.S. District Court for the Southern District of New York, U.S. v. Raj Rajaratnam et al, Case No. 09-2306, as reported by the New York Daily News here, here and here, and the New York Times here, here and here. Rajaratnam is a former Bear Stearns hedge fund manager and is the founder of Galleon Management LP, which managed some $3.7 billion in funds. Rajaratnam, a U.S. citizen born in Sri Lanka, was arrested on October 16 at his Manhattan home. U.S. Magistrate Judge Douglas Eaton set Rajaratnam's bail at $100 million which Rajaratnam posted. The indictment alleges a multi-million dollar insider trading scheme that spanned from coast to coast, in which Rajaratnam and Chiesi shared tips on companies like Google, Advanced Micro Devices, Hilton Hotels and others, and reaped more than $20 million in illicit profits by trading on the confidential information. Rajaratnam and Chiesi have both pled not guilty and are fighting the charges. The government claims to have numerous recorded telephone conversations from cooperating witnesses in support of the charges.
Rajaratnam's attorneys also requested a second time that his bail amount be reduced to $20 million. His lawyers disputed the government's reliance on Roomy Khan, an Intel Corp employee and former trader who was convicted of wire fraud in California in 2002 for passing confidential information to Galleon and Rajaratnam when she was an employee of Intel, and who is cooperating with the government. Half a dozen persons, including Ms. Khan, are cooperating in the case.
The U.S. Securities and Exchange Commission has also filed civil charges against Rajaratnam. Following Rajaratnam's arrest, investors withdrew more than $4 billion from various Galleon hedge funds, and the firm ceased operations.
The investigation has implicated 21 individuals, including 14 hedge fund managers, lawyers and other investors who were arrested in November. Robert Moffat, a senior official at I.B.M., Rajiv Goel, an executive of Intel; and Anil Kumar, an executive at the consulting firm McKinsey & Company, were arrested at the same time as Rajaratnam, but have not yet been indicted. The Court has granted the prosecution an extension of 30 more days to indict these individuals. The prosecution has described the case as the largest insider trading case in history.
Attorney Brien Santarlas, of the New York law firm of Ropes & Gray, pled guilty to conspiracy to commit securities fraud and wire fraud this week. Santarlas admitted that, from June 2007 to May 2008, he and another attorney, Arthur Cutillo, also with Ropes & Gray, used confidential information regarding acquisitions by 3Com, Inc., and Axcan Pharma, Inc. Bain Capital Partners LLC, a Ropes & Gray client, had announced it planned to acquire 3Com on September 27, 2007, in a deal which would have also involved China's Huawei Technologies Co Ltd. A U.S. government security panel rejected the deal, however. 3Com is now in the process of being purchased by Hewlett-Packard Co. Another Ropes & Gray client, TPG Capital LP, announced on November 29, 2007 that it was acquiring Axcan Pharma.Prosecutors charged Santarlas, Cutillo, Jason Goldfarb and Zvi Goffer with causing trades of 3Com and Axcan stock before the public announcements, making approximately $20 million in profits.Santarlas also faces civil charges by the SEC. His sentencing is tentatively scheduled for June 1. Cutillo was indicted in November.
Rajaratnam has also been linked to Steven Cohen, manager of SAC Capital Advisors, a hedge fund, major art collector, and with a $6 billion net worth, the 36th richest person in America. Cohen's ex-wife, Patricia Cohen, filed a lawsuit in Federal court on Wednesday alleging that Cohen had hid money during their divorce 20 years ago and asserting civil RICO claims. The former Mrs. Cohen alleges that Cohen had made millions from insider trading in the 1980s and had hid the money with the help of one of his real estate partners. Specifically, she claims that Cohen received an insider tip prior to General Electric's purchase of RCA in 1985. She is seeking $300 million from Cohen. SAC issued a statement criticizing the former Mrs. Cohen and her attorney, calling the allegations in the lawsuit "ludicrous" and "without merit."
Federal prosecutors on Wednesday asked for 30 more days to indict four defendants tied to the Galleon Group insider trading scheme, one day after two of the main players were formally indicted on conspiracy and fraud charges.
