Galleon Group founder Raj Rajaratnam and five others have been
arrested and charged in a $20 million insider-trading case,
prosecutors said.
At a press conference Friday, U.S. Attorney Preet Bharara
announced that Rajaratnam, the founder of the Galleon Group and
portfolio manager for the Galleon Technology Funds, has been
charged with four counts of conspiracy and eight counts of
securities fraud.
Galleon at one point had as much as $7 billion in assets under
management.
"This is not a garden variety insider-trading case," Bharara
said. "This case represents the largest hedge fund insider-trading
case ever charged criminally."
Bharara also said he believed it was the first time that
prosecutors had used a wiretap in an insider-trading case.
Rajaratnam was taken into custody Friday. In court documents,
prosecutors said Rajaratnam had expressed to another individual
that he believed a former Galleon Group employee was wearing a wire
and that Rajaratnam had purchased a plane ticket to fly to London
on Friday from New York's John F. Kennedy International
Airport.
Others charged criminally in the case include Rajiv Goel,
director in strategic investments at Intel Corp.'s (INTC)
investment arm; Anil Kumar, a director at global
management-consulting firm McKinsey & Co.; Danielle Chiesi and
Mark Kurland of New Castle Partners LLC, the one-time equity hedge
fund group at Bear Stearns Asset Management Inc.; and Robert
Moffat, a senior vice president at International Business Machines
Corp. (IBM).
Bharara said the investigation is ongoing.
The Securities and Exchange Commission separately brought civil
insider-trading charges against Rajaratnam and his company. The SEC
also brought charges against the five other individuals who had
been charged criminally and New Castle. The regulator, in its civil
case, claims the scheme netted more than $25 million in illicit
gains.
Rajaratnam is expected to appear in federal court in Manhattan
later Friday.
In a statement, Galleon Group said: "Galleon was shocked to
learn today that Raj Rajaratnam was arrested this morning at his
apartment. We had no knowledge of the investigation before it was
made public and we intend to cooperate fully with the relevant
authorities. Galleon continues to operate and is highly
liquid."
The allegations put Rajaratnam at the center of several insider
trades in which he allegedly caused Galleon funds to act on inside
information or passed along tips to others.
In one instance, prosecutors allege that Rajaratnam, between
January 2006 and July 2007, received nonpublic information about
Polycom Inc. (PLCM), Hilton Hotels Corp. and Google Inc. (GOOG) and
caused Galleon Technology Funds to make improper trades on that
information. As a result, the Galleon fund earned more than $12.7
million, prosecutors said.
The sources included an insider at Polycom, a source at Moody's
Corp. (MCO) who provided information pertaining to Hilton and a
source at Market Street Partners who provided information
pertaining to Google, prosecutors said. An unnamed cooperating
witness, whom Rajaratnam has known since the mid-1990s in
connection with the witness' prior employment, provided details of
some of the alleged insider trading to prosecutors, according to
court documents.
The cooperating witness received inside information from
Rajaratnam and provided similar information to Rajaratnam.
Google declined to comment.
In another instance, Chiesi, the New Castle employee, allegedly
received inside information regarding Akamai Technologies Inc.
(AKAM) and Advanced Micro Devices Inc. (AMD) from an unnamed Akamai
executive and Moffat, the IBM executive, prosecutors said.
She allegedly passed the information to Rajaratnam, who
allegedly provided her with information regarding AMD and other
publicly traded companies, the government said.
As a result of information Chiesi allegedly received from
Rajaratnam, Moffat and others, New Castle earned a profit of more
than $2.4 million, prosecutors said.
As an example, Chiesi allegedly called Rajaratnam on his cell
phone in a wiretapped telephone call on July 24, 2008, to tell him
that Akamai was planning to "guide down" the next Wednesday and
internally the company expected its stock price was going to go
down to $25 a share, prosecutors said.
Rajaratnam allegedly said he would be "radio silent" about the
information and told her she had "a few more days" before they
report, prosecutors said. She allegedly replied "Just keep shorting
every day. We got a lot of days..."
After the company announced its expected earnings for the
following quarter would be lower than analyst expectations,
Rajaratnam allegedly called Chiesi to thank her for the information
she provided, according to prosecutors.
A McKinsey spokeswoman said, "The firm was distressed to learn
that Mr. Kumar has been arrested and is looking into the matter
urgently."
Chuck Mulloy, an Intel spokesman, said, "We can confirm that Mr.
Goel is an employee of Intel's treasury department, not Intel
Capital. He's been placed on administrative leave as we look into
this matter. Intel was not aware of the case and was not and has
not been contacted by authorities."
-By Chad Bray, Dow Jones Newswires; 212-227-2017;
chad.bray@dowjones.com
(Jenny Strasburg and Don Clark of The Wall Street Journal
contributed to this story.)