October 13, 2011 by staff
Raj Rajaratnam, Raj Rajaratnam, Galleon Group LLC co-founder of which prosecutors called “the modern face of illegal insider trading,” was sentenced to 11 years in prison, one of the terms more and more use of privileged information, but less half of the maximum requested by the government.
Rajaratnam, 54, is the central figure in what U.S. investigators called the largest hedge fund insider trader case in U.S. history. The probe, which took advantage of the widespread use of FBI wiretaps for the first time in the investigation resulted in convictions of more than two dozen people. Prosecutors said he made more than 72 million by using illegal tips stock trading companies like Goldman Sachs Group Inc., Intel Corp., Google Inc., ATI Technologies Inc. and Clearwire Corp.
U.S. District Judge Richard Holwell Rajaratnam sentenced today to a full house in lower Manhattan, saying that its mandate has been improved due to its leadership role in the scheme and obstruction of the probe and related securities Exchange Commission. Holwell also noted that he had received over 200 letters on behalf of the fund manager, and Rajaratnam, who declined to speak, suffers from diabetes and needs a kidney transplant.
“This is a lighter sentence than anticipated,” said Anthony Sabino, a professor at St. John’s School of Law University of New York, pointing to the U.S. request up to 24 years. Sabino said the judge is sending a message with the term of 11 years. “Holwell is clearly achieving a crucial goal, which is, says Wall Street that this type of crime will not be tolerated and will be severely punished.”
Holwell Rajaratnam rejected the request to remain free on bail while he appeals his conviction, and told him to report to the facility at the Federal Correctional Complex in Butner, North Carolina, in 45 days. Bernard Madoff, convicted Ponzi scheme mastermind, is serving a sentence of 150 years at the facility.
The case helped spark Galleon two overlapping insider trading, research was based largely on wiretaps, a tool commonly used to investigate organized crime. In the past 18 months, U.S. federal prosecutor in Manhattan Preet Bharara claims more than 50 people in the three plans of crimes of abuse of privileged information.
A Manhattan federal jury convicted Rajaratnam on May 11 of all 14 counts of securities fraud and conspiracy against him. During the two-month trial, the panel heard evidence in a conspiracy involving seven years trading inside information from corporate executives, bankers, consultants, operators and directors of public companies.
“Shameless and arrogant”
“The criminal conduct was blatant Raj Rajaratnam, arrogant, harmful and widespread,” said Assistant U.S. Attorneys Jonathan Streeter, Reed Brodsky and Andrew Michaelson in court documents. “The corrupt old friends. The corrupt subordinates. Corrupted entire markets. Day after day, month after month, year after year, Rajaratnam acts as a force of one billion dollars of fraud and corruption on Wall Street.”
The prosecution asked for a prison term of 19 years and seven months to 24 1 / 2 years, citing federal sentencing guidelines and the historic nature of his crimes. ”
The U.S. Rajaratnam compared to Enron Corp. ‘s Jeffrey Skilling, who helped bring down the massive energy trader, and WorldCom Inc.’ s Bernard Ebbers, convicted in what prosecutors called “the worst accounting fraud.”
Skilling was sentenced to 24 years in prison and 25 years Ebbers. The Galleon Group hedge fund manager was also placed in the same category as Madoff, whose massive fraud said represented “the worst Ponzi schemes.”
Rajaratnam lawyers had asked for a sentence less than the period requested by the government, which was “just, fair and proportionate.” They said the federal guideline range of exaggerating the seriousness of the crimes Rajaratnam, and asked for the term sought by the U.S. “Grotesquely severe.”
Rajaratnam alleging he actually shares and 7.4 million only, who asked 6 1 / 2 to 8 years, according to a person familiar with the case of defense, who declined to be identified because the matter is not public.
There is no parole in the federal prison system.
Rajaratnam claimed a faulty calculation of the loss was responsible for most of the prison sentence requested government. The federal sentencing guidelines, which are advisory, increasing the recommended time for financial crimes, based on the amount of money lost. Holwell held a hearing October 4 to determine the losses resulting from crimes Rajaratnam.
The court’s role
“The role of this court is the validation of a fiscal effort of public relations, nor point to a man to serve as a scapegoat for Wall Street crimes,” Rajaratnam lawyers argued in court documents.
Rajaratnam, who did not take the stand at trial in his own defense, was convicted of five counts of conspiracy and nine counts of securities fraud. Still faces a lawsuit against him and the Galleon U.S. Securities Exchange Commission.
The remote Galleon scandal may have diverted or damaged the careers of executives who were not involved in trade.
Prosecutors said Rajaratnam sources of information included Rajat Gupta, who until last year was head of Goldman Sachs Group Inc., and Kamal Ahmed, a Morgan Stanley investment banker who prosecutors said passed through advice Galleon operator. Both deny the crime, and none of them has been charged with a crime in the case.
Witnesses for the prosecution included Goldman Sachs CEO Lloyd Blankfein, who said Gupta violated the privacy policies of the company for allegedly telling Rajaratnam on its results and strategic plans.
Robert Moffat, a former International Business Machines Corp. executive, was sentenced to six months in prison for leaking tips to Rajaratnam and co-defendant New Castle Funds LLCanlyst Danielle Chiesi. Moffat said he had an “intimate relationship” with Chiesi and said he had “played” for insider trading.
Hector Ruiz, former president of Advanced Micro Devices Inc., also gave inside information to Chiesi, according to prosecutors. Ruiz has not been charged with a crime.
Galleon was once one of the biggest hedge fund of 10, the management and $ 7 million at its peak in 2008. Rajaratnam and net worth of 1.3 billion made him the 559th richest person in the world, Forbes magazine said in 2009.
Before his arrest on October 16, 2009, said Rajaratnam Galleonanlysts had an advantage over rivals because most were trained as engineers and all focused exclusively on research.
“They do not ignore the marketing hype,” said Rajaratnam of itsanlysts in the book “The Superstars new investment: 13 large investors and their strategies for greater profitability,” by Lois Peltz. At trial, lawyers for Rajaratnam said his trade is based on the investigation of Galleon.
Adam Smith, a former Galleon trader said that the edge of Galleon tips came from illegal insider trading of the company. Rajaratnam emphasized “getting the numbers” – or learning revenue figures before they became public – from inside information from Intel, Intersil Corp. and other publicly traded companies, Smith said.
“Research is a kind of do your homework ahead of time,” said Smith, who pleaded guilty to insider trading and agreed to cooperate with prosecutors, members of the jury. “Getting the number is more like cheating on the exam.”
Jurors in the trial Rajaratnam has heard more than 40 recordings of the co-founder of Galleon, conducted by the Federal Bureau of Investigation, where they chatted and joked with the sources, while information on projected sales and mergers.
“They’re going to guide down,” said Rajaratnam Chiesi to the July 24, 2008, after she escapes from an insider’s Akamai Technologies Inc. could cut its forecast. “I just received a tip from my uncle.”
Defense attorney John Dowd said he would appeal the use of wiretaps, telling the judge the matter was “very important”.
Rajaratnam lawyers argued that wiretaps should not be used at trial because the U.S. failed to disclose key facts about the investigation. Holwell granted prosecutors the right to use about 2,400 taped conversations between Rajaratnam and more than 130 friends, associates and accomplices.
Born in Sri Lanka capital, Colombo, Rajaratnam was educated there at St. Thomas High School before leaving for England, where he studied engineering at the University of Sussex. He came to the U.S. to obtain a master’s degree in business administration, graduating from the University of Pennsylvania Wharton School in 1983.
Two of his fellow Wharton – Anil Kumar, who became a partner at McKinsey & Co., and Rajiv Goel, who was general manager of Intel – testified against him at trial, said Rajaratnam corrupted his friends as he sought as sources of secret information. Both have pleaded guilty.
Rajaratnam first job after graduation was at Chase Manhattan Bank, where he was a loan officer in the group that made loans to high-tech companies. In 1985, he joined Needham & Co., an investment bank based in New York that specializes in technology companies and health.
It started as ananlyst covering the electronics industry and rose through the ranks, becoming head of research in 1987, chief operating officer in 1989 and president in 1991. A year later, at 34, started a fund for Rajaratnam, Needham Emerging Growth Partners LP, according to marketing documents Galleon.
Rajaratnam and colleagues Krishen Sud Needham, Gary Rosenbach and Ari Arjavalingam Galleon Group formed in January 1997. Later that year, were the management and 830 million, the majority of company executives Rajaratnam technology had gotten to know throughout his career, according to “The Superstars new investment.”
Bharara Office has claimed more than two dozen people in cases involving Galleon. In June, Zvi Goffer, a trader at Galleon before, his brother Emanuel, and Michael Kimelman were convicted of conspiracy and securities fraud. The three men began to Incremental Capital LLC after Zvi Goffer was fired by the galleon in 2008.
Trial testimony showed the three points used in the pending acquisition of two lawyers, who was then working on the ropes Boston-based firm Gray & LLP law for the benefit of the operations of 3Com Corp., Axcan Pharma Inc., Kronos Inc. Hilton Hotels Corp.
Zvi Goffer was mentioned by some of his companions as “Octopssy”, according to prosecutors. James Bond film reference Goffer many tentacles emerged from reaching sensitive corporate information, prosecutors said.
At least 15 others were convicted in Manhattan, in a third round of the cases of insider trading brought by the office-Bharara since November. They involved the so-called expert networks, companies that match industry experts with fund managers.
Trial testimony showed that some employees of public companies, while moonlighting for companies such as Mountain View, California-based Global Research LLC primary, non-public information goes to the fund managers’ fees.
Zvi Goffer was sentenced to 10 years in prison by U.S. District Judge Richard Sullivan. Holwell Chiesi was convicted to 30 months in prison. Craig Drimal, a trader at Galleon earlier, Sullivan was convicted to 66 months. Jason Goldfarb, who was part of Zvi Goffer ring, was sentenced to three years in prison for Sullivan.
IBM executive sentenced
Moffat was sentenced to six months in prison by U.S. District Judge Deborah Batts. Mark Kurland, a fund manager at New Castle Funds and the head of Chiesi, was sentenced to 27 months by the U.S. District Judge Victor Marrero.
A former adviser to the World Elementary, Winifred Jiau, was sentenced in September to four years in prison for passing income and other information about Nvidia Corp. and Marvell Technology Group Ltd. to hedge fund managers. Two fund managers, Noah Freeman, a former SAC Capital Advisors LP portfolio manager, and Samir Barai, founder of the New York-based Barai Capital Management LP, had pleaded guilty in the case.
Freeman said that from and 5 million 10 million by trading on information Jiau from Nvidia.
Donald Longueuil, another former portfolio manager at SAC Capital Advisors, was sentenced in July to 2 1 / 2 years in prison for his role in the scheme.
Longueuil admitted that after reading a newspaper article about the World Primary probe, went to his office and took pliers to two drives in your computer, your destruction. Prosecutors said he walked 20 blocks and threw the parts in four different garbage trucks.
“I chopped, chopped everything,” Longueuil wrote in a text message to Freeman, according to the complaint filed by the U.S. in February.
The case is U.S. against Rajaratnam, 09-01184, U.S. District Court for the Southern District of New York (Manhattan).
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