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Billionaire Hedge Fund Trader Guilty Of Insider Trading

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http://www.bbc.co.uk/news/business-13188529

Galleon boss Rajaratnam found guilty of insider trading

US hedge fund billionaire Raj Rajaratnam has been found guilty of making tens of millions of dollars from insider trading.

The unanimous verdict, which he plans to appeal, ends an eight-week trial in what prosecutors call the largest hedge fund insider trading case in history.

Central to the prosecution's evidence were tapped phone calls between Rajaratnam and corporate insiders.

Rajaratnam faces between 15-and-a-half and 19-and-a-half years in jail.

'Greed and corruption'

He was released on a $100m (£61m) bail with an electronic tag until the sentencing date of 29 July, although prosecutors had asked for him to be kept in custody, saying he may flee to his native Sri Lanka.

Arguably the most damning part of the prosecution was the wiretaps. For day after day the court listened in on Rajaratnam getting illicit tips and boasting of having "his" people on the board of companies.

Although it's notoriously hard to prove that someone's trades were based on the receipt of inside information, those recordings were evidently impossible for the jurors to overlook.

And the fact that so much of such a high profile investor's trading was being listened to by the FBI, with such severe consequences, may make other big players on Wall Street nervous.

Verdict marks government victory

Rajaratnam was found guilty on all of the 14 charges he faced, including five counts of conspiracy and nine of securities fraud.

The hedge fund manager's defence attorney said they would appeal the verdict, noting that 23 of the 37 original accusations against his client had already been dropped before the trial began.

The jury decision was postponed for several days after one juror fell ill and had to be replaced, forcing the jury to restart their deliberations from the beginning.

Jurors went back to the courtroom repeatedly during their deliberations to listen to sections of the 45 tapes of wire-tapped telephone calls.

"Rajaratnam was among the best and the brightest - one of the most educated, successful and privileged professionals in the country," said Manhattan attorney Preet Bharara, who prosecuted the case, in a press release following the verdict.

"Yet, like so many others recently, he let greed and corruption cause his undoing."

The attorney general's office has charged 47 people with insider trading in the last 18 months, and Rajaratnam is the 35th to be convicted.

"The message today is clear - there are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have."

Aggressive trading

Prosecutors argued Rajaratnam made as much as $63.8m (£39m) in illegal profits from 2003 to March 2009 by trading on tips from a network of highly-placed corporate insiders.

Mr Rajaratnam was released on a $100m bail - but electronically tagged - until sentencing on 29 July

The companies traded included Google, Intel and Hilton Hotels, the prosecution said.

In his final closing arguments, Assistant US Attorney Jonathan Streeter said the Rajaratnam defence team wanted the jury to defy logic and common sense and ignore the evidence provided by dozens of recorded phone calls of illegal trading tips.

Prosecutors highlighted conversations they argued showed the win-at-all-cost attitude of Rajaratnam, who wanted to "conquer the market".

The court heard how investment manager Danielle Chiesi, speaking with Rajaratnam, boasted about one insider tip.

"They're going to guide down. I just got a call from my guy - I played him like a fine-tuned piano," she said.

In another call, she said she was "glad that we talk on a secure line".

Continue reading the main story

Insider information

IBM senior executive Robert Moffat admitted tipping off Galleon employee Danielle Chiesi, with whom he was having an affair, about financial results at his firm and at Sun Microsystems, as well as the dealings of computer chip giant, Advanced Micro Devices (AMD)

A former university classmate testified that he had passed "red hot" information to Rajaratnam about AMD's plans to take over of a rival, which made the trader a $20m profit

An executive at chipmaker Atheros also admitted leaking information

A managing director at rival hedge fund New Castle Funds confessed he had received tips from Chiesi, his former employee

Wire taps recorded Rajaratnam asking former Goldman Sachs board member Rajut Gupta about acquisition plans - the Wall Street firm's head, Lloyd Blankfein, personally testified that the tip-off broke company rules

Rajaratnam made $2m based on 30 minutes of phone calls with a source at Intel

An employee of ratings agency Moody's let him know about secret plans by private equity fund Blackstone to take over the Hilton hotel group

A consultant gave Rajaratnam advance information on Google's financial results

In its original charge against Rajaratnam, US financial regulator the Securities and Exchange Commission said he 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."

Sweeping probe

Defence attorney John Dowd argued the secretly-recorded conversations were between traders discussing widely-known stock information.

He said prosecutors had failed to prove that Rajaratnam had broken any insider-trading laws.

The Sri Lankan-born billionaire, 53, is the central figure in a sweeping US government probe of insider trading at hedge funds.

More than two dozen people have been criminally or civilly charged in the case. Most of them have pleaded guilty, and Rajaratnam is the first to go to trial.

"When that many people pleaded guilty in advance, I'm surprised it went to trial. I'm surprised they didn't try to work out a deal," said Michael Koblenz, a former federal prosecutor.

"But if you've got the money and you want to take a shot, maybe it was worth it to him."

He suggested that Rajaratnam may have wanted to keep open the option of trying to win the case on appeal.

Edited by nmarks

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Although it's notoriously hard to prove that someone's trades were based on the receipt of inside information, those recordings were evidently impossible for the jurors to overlook.

That's the only reason they got a guilty verdict- practically a signed confession on tape. Amazing how these people feel so immune that they happily discuss illegal activity on a phone line.

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There's a house for sale in Pakistan at the moment. The US has had enough manhunts for now.

i still, and will always fail to understand how someone can be inept enough to get done for insider trading, all it requires is a relationship of trust and its teflon.

Whats the hit rate 1 in 1000, yet look at any equity volume before an announcement and its statistically relevant

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After his arrest, Galleon received requests from investors for the withdrawal of $1.3 billion, causing the fund to close down.[13] In a letter dated October 21, 2009 Mr. Rajaratnam informed his employees and investors that he intended to wind down all the hedge funds of the Galleon Group. Investors received their entire money back in January 2010, plus profits

http://en.wikipedia.org/wiki/Raj_Rajaratnam

Well at least he wasn't running a ponzi scheme.

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