Guilty! Ex-Hedge Fund Manager Rajaratnam Convicted on 14 Charges

×
A former Wall Street titan was convicted Wednesday of making a fortune by coaxing a crew of corporate tipsters to give him an illegal edge on blockbuster trades in technology and other stocks - what prosecutors called the largest insider trading case ever involving hedge funds.

Raj Rajaratnam was convicted of five conspiracy counts and nine securities fraud charges at the closely watched trial in federal court in Manhattan. The jury had deliberated since April 25, and at one point was forced to start over again when one juror dropped out due to illness.

Prosecutors had alleged the 53-year-old Rajaratnam made profits and avoided losses totaling more than $60 million from illegal tips. His Galleon Group funds, they said, became a multibillion-dollar success at the expense of ordinary stock investors who didn't have advance notice of the earnings of public companies and of mergers and acquisitions.

Rajaratnam will remain free on bail, though now with electronic monitoring, at least until his July 29 sentencing.

The verdict came after seven weeks of testimony showcasing wiretaps of Rajaratnam wheeling and dealing behind the scenes with corrupt executives and consultants. Some of the people on the other end of the line pleaded guilty and agreed to take the witness stand against the Sri Lanka-born defendant.

Authorities said the 45 tapes used in the case represented the most extensive use to date of wiretaps - common in organized crimes and drug cases - in a white-collar case.

The defense had fought hard in pretrial hearings to keep the avalanche of audio evidence out of the trial by arguing the FBI obtained it with a faulty warrant. Once a judge allowed them in, prosecutors put the recordings to maximum use by repeatedly playing them for jurors.

"You heard the defendant commit his crimes time and time again in his own words," Assistant U.S. Attorney Reed Brodsky said in closing arguments.

"The tapes show he didn't believe the rules applied to him," the prosecutor added. "Cheating became part of his business model."

The wiretaps appeared to play prominently in the jurors' deliberations: They asked to return to the courtroom countless times so they could listen to them again.

The defense argued that the tapes revealed nothing more than that Rajaratnam was doing his duty by asking questions about information already circulating in the "real world" of high finance.

"That happens every day on Wall Street," he said. "There's nothing wrong with it."

Dowd headed a team of attorneys who crowded around the defense table each day. The defendant took an uncustomary position on a bench behind them and listened along with jurors as his voice filled the courtroom.

In one July 29, 2008, call, Rajaratnam could be heard grilling former Goldman Sachs board member Rajat Gupta about whether the board had discussed acquiring a commercial bank or an insurance company. "Have you heard anything along that line?" Rajaratnam asked Gupta.

"Yeah," Gupta responded. "This was a big discussion at the board meeting."

Prosecutors sought to maximize the impact of the Gupta tape by calling Goldman Sach's chairman Lloyd Blankfein to testify that the phone call violated the investment bank's confidentiality policies. Gupta, who has not been charged, has denied any wrongdoing.

The government also has played tapes of Rajaratnam it said proved he was trading secrets and orchestrating cover-ups with fellow hedge fund manager Danielle Chiesi, who has pleaded guilty in the case.

"I mean I think this stock could go up $10 you know? But we got to keep this radio silence," Rajaratnam said in one tape.

"Oh please. That is my pleasure," Chiesi responded.

"Not even to your little boyfriends, you know?"

"No, believe me, I don't have friends," she replied.

Rajaratnam advised Chiesi to buy 1 million shares of tech stock on an inside tip, then sell 500,000 of those shares - a tactic prosecutors say was used to throw regulators off the trail. In another instance, about 30 minutes of calls with an Intel tipster scored Rajaratnam a $2 million windfall on the computer chip-maker's stock, prosecutors said.

Former financial consultant Anil Kumar testified that he and Rajaratnam - his former classmate at the University of Pennsylvania's prestigious Wharton School - broke the law by speaking regularly about the negotiations over the acquisition of ATI Technologies Inc. by Kumar's client, Advanced Micro Devices Inc., before the deal was announced.

"I told him that this was 'red hot' and shouldn't be discussed," Kumar said. Later, he said he cautioned the defendant, "This is going to be a complete shock to the industry ... so treat this with the strictest of confidence."

Prosecutors say Rajaratnam raked in $20 million by trading on his advance notice of the ATI-AMD deal. Afterward, he called Kumar at home and said, "You're a star," Kumar told the jury in federal court in Manhattan.

When Rajaratnam later informed Kumar that he would be rewarded with a $1 million kickback, "I almost fell off my chair," the witness said.

The Galleon probe has resulted in more than two dozen arrests and 21 guilty pleas. It also has led to a second investigation aimed at consultants in the securities industry who pass off inside information as the product of legitimate research.

Only Rajaratnam has gone to trial and relived conversations that the insiders never suspected were being monitored. On one tape, Rajaratnam sounded sheepish when one particularly effusive tipster praised him for being a star in the hedge fund universe. "The myth," Rajaratnam said, "is larger than the reality."

Increase your money and finance knowledge from home

Economics 101

Intro to economics. But fun.

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

Add a Comment

*0 / 3000 Character Maximum

43 Comments

Filter by:
jkennedy806

Round them all up, for financial terrorism of the American people and the national economy. Do you know now it is so hard to get any kind of loan out of a bank. that's why the economy is dead my friends, cause now the banksters won't give out any kind of money at all. It's time for the dim bulbs in DC to step in and take control of the banksters and explain to those goon hoodlums that the American people want a sound economy, one based on best management practices. Stop derivative trading of loans. You want to trade, fine go trade publically owned stock go gamble that. But stay away from speculation on shorts on commodities -- next thing you know these Wall Street crooks will be speculating toilet paper to wipe US up with

May 12 2011 at 8:26 AM Report abuse +1 rate up rate down Reply
Su Liu

it's just a testing.

May 11 2011 at 11:02 PM Report abuse rate up rate down Reply
Su Liu

good music,honey girl,
http://www.flixya.com/user/tourpic/videos

May 11 2011 at 11:01 PM Report abuse -1 rate up rate down Reply
gerbersmail

This is just one of many getting away with this! We need to send a message to these individuals and prosecute them to the full extent of the law with the maximum sentence. Then and only then will there be a legitimate deterant. There are those who think they are one step ahead of everyone else including the laws that govern these actions. And quite frankly, they are with inside information. Simply put, give them life behind bars for actions of this magnitude and maybe, just maybe they will think twice.

May 11 2011 at 11:01 PM Report abuse rate up rate down Reply
mount carmine

save your money honey, the old fashion way,send it to me.

May 11 2011 at 9:42 PM Report abuse +1 rate up rate down Reply
zooropa58

and he is one with the highest education, experience and ethical reputation.....what do you think the lesser folks are doing? perhaps the market is down today because they know what is coming?

May 11 2011 at 6:04 PM Report abuse +1 rate up rate down Reply
someoneole

Lets remember that it was the GOP in Bush's term that restricted the SEC. This was done to call the dogs off their coneys on Wall Street who are large contributors to the GOP, and that is why that Bernard Madoff and this guy almost got away with it. This is just the tip of the ice berg.

May 11 2011 at 5:15 PM Report abuse +1 rate up rate down Reply
1 reply to someoneole's comment
db

hey ******* get your facts correct that was done by Barney Frank and Chris Dodd the two biggest crooks (gay) crooks to hit Washington

May 12 2011 at 8:48 AM Report abuse +1 rate up rate down Reply
jkennedy806

In other countries they execute scum bag basturds like this. Lets bring back tar and feathers. And the stock market tanked today said it was because were not using enough gas. WRONG, THE SCUM BAGS ON WALL STREET ARE WORRIED THAT WITH THE UPCOMING ELECTION IN 2012 they too will be rounded up and placed on trial.

May 11 2011 at 4:58 PM Report abuse +3 rate up rate down Reply
kmgb60

It is/was the hedgies that played a huge role in the so-called failure of Washington Mutual. That whole lie where thousand of everyday Joe investors lost their life savings. And still the government sides with the boys club.

May 11 2011 at 3:50 PM Report abuse +1 rate up rate down Reply
1 reply to kmgb60's comment
jkennedy806

Lost their savings, loose homes, lost jobs !! Let's take a look shall we. Before there were construction jobs, zoning officer's were busy, tax assessors were busy (our government center is down to 2 tax assessors -- used to be 14) the deed office was filing deeds and taking filing fees. The house had to have floors and carpet -- appliances, furniture, pools, garages, landscaping lawn mowing, sidewalks, streets paved. Now it's all stopped. think of all the tax revenue the locals and state lost out on and the school districts. That now has to come out of the remaining poor slobs who are left holding the bag a.k.a. taxpayers. All because the dim bulbs in Washington had to bail out SCUM BAGS like this jerk. Instead to taking the path ot make money Washington had to protect itself and the lobby and the result is the credit crisis, lost and empty homes that don't pay taxes or sewar or water or garbage, a drain on the economy, unempoyed people are a drain on the economy, as a result of the cut back in services. IN PA the primary is in a week or two, remember vote out an incumbent -- if your not part of the solution must be part of the problem.

May 11 2011 at 4:25 PM Report abuse +1 rate up rate down Reply
bjadebe

through the fat rag head bastard in jail with buba so he can be his bitch for the rest of his filthy life.that fat ****.

May 11 2011 at 3:36 PM Report abuse +2 rate up rate down Reply