SAN FRANCISCO (MarketWatch) — Sri Lankan-born Raj Rajaratnam, the billionaire founder of hedge-fund firm Galleon Group LLC, was found guilty of 14 counts of conspiracy and securities fraud Wednesday, handing the U.S. government a big victory in a multi-year investigation into insider trading.
Rajaratnam was arrested in October 2009 and charged with five counts of conspiracy and nine counts of securities fraud.
In a trial that began March 8, Rajaratnam’s lawyers argued he was conducting bona fide investment research, rather than trading on inside information.
Although his lawyers have already announced their intentions to appeal, the 53-year-old Rajaratnam faces decades in prison if the verdict is upheld. However, the trial judge turned down a motion to have him remanded into the custody of U.S. marshals, pending the next stage.
“Raj Rajaratnam, once a high-flying billionaire and hedge-fund manager, is now a convicted felon 14 times over,” said Preet Bharara, the U.S. attorney in Manhattan, in announcing the verdict. “Rajaratnam was among the best and the brightest — one of the most educated, successful and privileged professionals in the country. Yet like so many others recently, he let greed and corruption cause his undoing.”
The message, Bharara continued, is that “there are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have.” Jacob Frenkel, who runs the securities-enforcement, white-collar crime and government-investigations practice at law firm Shulman Rogers Gandal Pordy & Ecker, described the outcome as “a resounding victory for the government [that] validates both the decision to pursue senior Wall Street officials and the use of aggressive investigative techniques like wiretaps.” He noted that one guilty verdict would have been a win, but “guilty on all 14 counts is overwhelming [and] is likely to result in a significant jail term.”
After weeks of deliberations, the jury in federal court in Manhattan found Rajaratnam guilty of the following:
Count 1: Conspiracy to commit securities fraud involving inside information about companies including Advanced Micro Devices Inc.
Count 2: Conspiracy to commit securities fraud involving an alleged insider-trading scheme between Rajaratnam and Roomy Khan.
Count 3: Conspiracy to commit securities fraud involving an alleged insider-trading scheme between Rajaratnam and former Intel Corp. executive Rajiv Goel.
Count 4: Conspiracy to commit securities fraud involving an alleged insider-trading scheme between Rajaratnam and former McKinsey & Co. senior partner Anil Kumar.
Count 5: Conspiracy to commit securities fraud involving an alleged insider-trading scheme between Rajaratnam and Danielle Chiesi of Bear Stearns hedge fund New Castle Partners.
Count 6: Securities fraud involving Galleon trading of Clearwire Corp. shares on March 24, 2008.
Count 7: Securities fraud involving Galleon trading of Clearwire shares on March 25, 2008.
Count 8: Securities fraud involving Galleon trading of Akamai Technologies Inc.’s shares on July 25, 2008.
Count 9: Securities fraud involving Galleon trading of Akamai shares on July 29, 2008.
Count 10: Securities fraud involving Galleon trading of Akamai shares on July 30, 2008.
Count 11: Securities fraud involving Rajaratnam trading of PeopleSupport shares on July 28, 2008.
Count 12: Securities fraud involving Rajaratnam trading of PeopleSupport shares on Oct. 7, 2008.
Count 13: Securities fraud involving Galleon transactions in securities of ATI Technologies in 2006.
Count 14: Securities fraud involving Galleon transactions in securities of Intel on about April 2007.
“Today’s guilty verdict in the trial of Raj Rajaratnam on all 14 counts of securities fraud for insider trading is a milestone victory for honest investors,” said Mark Rifkin, a securities class-action and shareholder attorney at Wolf Haldenstein Adler Freeman & Herz. “The conviction is a strong reminder that money and privilege do not give anyone the right to trade at an advantage over the rest of the market.”
For Prof. Anthony Michael Sabino of St. John’s University College of Business, the verdict means “justice is served.”
For more than 30 years, “the government has had a spotty history in insider-trading cases, reflecting the difficulty of gathering evidence, explaining the machinations of high finance to a jury and reconciling sometimes conflicting legal theories,” he continued.
But this case, according to Sabino, “is the start of a new era in white-collar crime prosecutions.” The government “has learned the value of electronic surveillance in organized-crime cases [and] will now employ the same tactics against the ‘Wall Street Mob.’”
Some of the wiretap evidence is likely to be front and center at any appeal, said Latour “L.T.” Lafferty, a former U.S. attorney now in private practice at Florida-based law firm Fowler White Boggs.
He gives Rajaratnam long odds of prevailing in any appeal, as “the government has an outstanding success rate” in such proceedings.
“There is a saying that once you are indicted, you have already lost,” Lafferty added, noting that the enormous expenses of further litigation also come into play in appeals.
While he stressed he has no personal knowledge of Rajaratnam’s legal bills, Lafferty went on to say: “I feel comfortable speculating he has spent well in excess of seven figures on this case already,” and could be on the hook for at least as much more.
(Alistair Barr is a reporter for MarketWatch in San Francisco while William Spain is a MarketWatch staff writer in Chicago).