Raj’s arrest triggers panic in Lanka

Alleged Hedge-fund fraud in US
By Feizal Samath

Sri Lankan-born billionaire businessman Raj Rajaratnam's arrest in the United States on Friday on an alleged US$ 20 million insider trading charges has hit Sri Lanka like a thunderbolt with not only the Colombo Securities & Exchange Commission(SEC) here scrambling to check whether his million-dollar dealings bordered on any illegality, but also high-level politicians under a cloud for involvement with him.

The US Attorney, Preet Bharara, announced Rajaratnam's company Galleon Group had as much as US$ 7 billion in assets. "This is not a garden variety insider-trading case", he told a news conference after the arrest. "This case represents the largest hegde fund insider-trading case ever charged criminally".

In Colombo, news that his arrest by US federal agents who wire tapped his telephone calls by court authority sent the political establishment as well as the business community into a tail-spin. Cabinet Ministers and former Cabinet Ministers with whom the US-based Sri Lankan fund manager had been talking were concerned if their names would come up in the investigations.

In September this year, Justice Minister Milinda Moragoda had told President Mahinda Rajapaksa that Rajaratnam was willing to pay US$ 1 million for the rehabilitation of LTTE child-soldiers. Foreign Minister Rohitha Bogollagama had objected to the exercise saying that the Foreign Ministry had given a dossier to the US Treasury Department's Directorate of Intelligence on Money Laundering that Rajaratnam is a front for LTTE finances.

Minister Bogollagama yesterday confirmed to the Sunday Times that he had objected to his Cabinet colleague's suggestion. The Justice Ministry later made a public announcement stating that Rajaratnam would be giving this money.

Rajaratnam being taken to courts by FBI agents on Friday. Reuters

Rajaratnam's tentacles into the Sri Lankan political mainstream extends to meetings with President Mahinda Rajapaksa and Opposition Leader Ranil Wickremesinghe. His business associates included frontline Cabinet Ministers, past and present. Much of his Sri Lankan portfolio is managed by the son of a now retired multi-millionaire businessman of a blue-chip company and who is married to a Cabinet Minister's sister.

The single largest known US contributor to a charity linked to the LTTE, the Tamil Rehabilitation Organisation (TRO), Rajaratnam was a major contributor to US Secretary of State Hillary Clinton's campaigns.

Rajaratnam had given as much as US$ 3.5 million to the TRO. "The TRO passed off its operations as charitable, when in fact it was raising money for designated terrorist groups responsible for heinous acts of terrorism," director of the Treasury Office of Foreign Assets Control at the time said.

The New York-based businessman has a stake in all ten of the top listed Sri Lankan companies.
In the general sense of things we need to probe and find out whether any of the transactions Rajaratnam was involved were questionable, said an SEC official, who declined to be named. “There haven’t been any issues in the past (over his investments) but due to the new developments it is incumbent on our part to look at these issues afresh”

Mr. Rajaratnam, is the single largest foreign investor in Sri Lankas stock market, investing millions in blue chips companies and lately in smaller firms. This has raised some eyebrows, according to stock market analysts.

When he first began investing in 2002-03, it raised concerns on whether he was using funds indirectly raised by the LTTE, a charge he vehemently rejected.

US TV footage and newspaper pictures of Mr Rajaratnam being led by US agents in handcuffs would be the worst nightmare for any top corporate CEO and a “good” lessons for Sri Lankan corporate bosses who get away scot free on similar issues, said a respected corporate CEO, who didn’t want to be identified. “That’s what is called democracy, where no one --the richest and the most powerful included -- is above the law. That is governance in the real sense, not the kind of nonsense that is practiced here -- where everything is only on paper and annual reports,” he said.

But a Colombo executive, who has associated with the suspect, said it was unfair to condemn Mr Rajaratnam until “proven guilty” “He has invested heavily in the stock market here and also spent his own funds on tsunami housing for the needy and recently gave a million dollars to a government project to rehabilitate LTTE cadres. This present issue has been brought upon by competitors and is a fall-out from the global financial crisis,” the executive, who declined to be named, said, adding that, “instead of a trial by media, let’s wait for the legal system to ascertain whether he is guilty or not.”

Mr Rajaratnam, 52, was ranked No. 559 by Forbes magazine this year among the world's wealthiest billionaires, with a $1.3 billion net worth, according to AP news agency reports. He was among six hedge fund managers and corporate executives arrested on Friday in a hedge fund insider trading case that US authorities say generated more than $25 million in illegal profits and was a wake-up call for Wall Street. He was given bail at $100 million to be secured by $20 million in collateral despite a request by prosecutors to deny bail. The judge also ordered Mr. Rajaratnam, who has both U.S. and Sri Lankan citizenship, to stay within 110 miles of New York City.

U.S. Attorney Preet Bharara told a news conference it was the largest hedge fund case ever prosecuted and marked the first use of court-authorized wiretaps to capture conversations by suspects in an insider trading case. "Greed is not good," Mr. Bharara said. "This case should be a wake-up call for Wall Street." AP quoted Joseph Demarest Jr., head of the New York FBI office, as saying it was clear that "the $20 million in illicit profits come at the expense of the average public investor."

In Colombo, the corporate world was stunned and officials at the companies and banks where the savvy US-educated investor has major stakes declined to comment. “He is an investor like anyone else,” said one official, declining further comment.

According to latest available figures, Mr Rajaratnam, whose father -- J.M. Rajaratnam was the chairman of Singer (Sri Lanka) in the 1970s before being promoted to head the multinational's South East Asian operation based in Bangkok, has a 9.2% stake in John Keells Holdings (JKH), his biggest investment upto date and, through two Galleon-related funds has 13% in People’s Merchant Bank (PMB) and 3.4% in Commercial Bank.

Brokers in Colombo say that, Mr Rajaratnam, who began investing in the Sri Lankan bourse soon after the United National Party-led peace process began in 2002, has investments -- individually and through the Galleon Fund group in the 10 top Colombo blue chips (biggest companies) which include DFCC, NDB, Dialog, SLT and Hayleys, though in some of these companies he has exited (sold his stock) in the recent past.

His most recent, big investment was in Hemas Hospitals, and like in all other companies he has not sought a board (director) position, though, brokers say, many companies would have “loved” to have him on board given his international status as a global investor.

“While there have been no issues with his investments in the big companies, there has been ‘talk’ in the market over his investments in smaller firms where the return (on investment) is lower,” one stock market analyst said.

Mr Rajaratnam is the second Sri Lankan investor who made it big in the US to hit the headlines for the wrong reasons. In 2006, Sri Lankan-born Sanjay Kumar, former Chief of a California-based company called Computer Associates International, was sentenced to 12 years in prison and fined US $8 million for securities fraud and obstruction of justice following a two-year investigation of an improper accounting scheme. Some years back, Mohamed Muhsin, former World Bank Vice President in charge of IT, hit the headlines in the US media over allegations of impropriety during his tenure at the bank, charges he has rejected.

The Sri Lankan suspect was a prominent speaker at the local CIMA business summit in June 2005, sharing the podium with well known personalities like former Malaysian Prime Minister Mahathir Mohamed and cricket legend Imran Khan.

In an interview with the Sunday Times FT published on June 5, 2005, Mr Rajaratnam dismissed speculation that he had funded Tamil Tiger guerrillas. "I have funded orphanages in Mullaitivu, as much as I have funded education projects in Kalutara. I funded Vanni Tech as much as I funded Sunera Foundation. I know there is speculation, but I don't worry about it one bit. When somebody is successful, apparently it appears that no good deed goes unpunished. People don't understand philanthropy in this country.

“Here when you do charity people say that I have got political ambitions. I am very tenacious, so these statements are not bothering me," he was quoted as saying.

According to US news reports, also charged in the insider dealing scheme were Rajiv Goel, 51, of Los Altos, Calif., a director of strategic investments at Intel Capital, the investment arm of Intel Corp., Anil Kumar, 51, of Santa Clara, Calif., a director at McKinsey & Co. Inc., a global management consulting firm, and Robert Moffat, 53, of Ridgefield, Conn., senior vice president and group executive at International Business Machines Corp.'s Systems and Technology Group.

Mr Rajaratnam, like any US businessman, has contributed to political campaigns, the latest being $30,800 to Barack Obama and $4,600 to Hillary Clinton in the last presidential election. He lives in a $10 million condominium with his wife of 20 years, their three children and two elderly parents, according to the reports. Mr Rajaratnam has a degree from Britains University of Sussex and an MBA from the Wharton School at the University of Pennsylvania. He founded Galleon Group in 1997 making it among the biggest hedge funds in the world.

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