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  • Billionaire among 6 nabbed in inside trading case

    Billionaire among 6 nabbed in inside trading case
    Wall Street wake-up call: Hedge fund boss, 5 others charged in $25M-plus insider trading case

    By Larry Neumeister and Candice Choi, Associated Press Writers
    On 7:35 pm EDT, Friday October 16, 2009

    NEW YORK (AP) -- One of America's wealthiest men was among six hedge fund managers and corporate executives arrested Friday in a hedge fund insider trading case that authorities say generated more than $25 million in illegal profits and was a wake-up call for Wall Street.

    Raj Rajaratnam, a portfolio manager for Galleon Group, a hedge fund with up to $7 billion in assets under management, was accused of conspiring with others to use insider information to trade securities in several publicly traded companies, including Google Inc.

    U.S. Magistrate Judge Douglas F. Eaton set bail at $100 million to be secured by $20 million in collateral despite a request by prosecutors to deny bail. He also ordered 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.

    He said the case should cause financial professionals considering insider trades in the future to wonder whether law enforcement is listening.

    "Greed is not good," Bharara said. "This case should be a wake-up call for Wall Street."

    Joseph Demarest Jr., the head of the New York FBI office, said it was clear that "the $20 million in illicit profits come at the expense of the average public investor."

    The Securities and Exchange Commission, which brought separate civil charges, said the scheme generated more than $25 million in illegal profits.

    Robert Khuzami, director of enforcement at the SEC, said the charges show Rajaratnam's "secret of success was not genius trading strategies."

    "He is not the master of the universe. He is a master of the Rolodex," Khuzami said.

    Galleon Group LLP said in a statement it was shocked to learn of Rajaratnam's arrest 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," the statement said.

    The firm added that Galleon "continues to operate and is highly liquid."

    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 the Federal Election Commission, he is a generous contributor to Democratic candidates and causes. The FEC said he made over $87,000 in contributions to President Barack Obama's campaign, the Democratic National Committee and various campaigns on behalf of Hillary Rodham Clinton, U.S. Sen. Charles Schumer and New Jersey U.S. Sen. Robert Menendez in the past five years. The Center for Responsive Politics, a watchdog group, said he has given a total of $118,000 since 2004 -- all but one contribution, for $5,000, to Democrats.

    The Associated Press has learned that even before his arrest, Rajaratnam was under scrutiny for helping bankroll Sri Lankan militants notorious for suicide bombings.

    Papers filed in U.S. District Court in Brooklyn allege that Rajaratnam worked closely with a phony charity that channeled funds to the Tamil Tiger terrorist organization. Those papers refer to him only as "Individual B." But U.S. law enforcement and government officials familiar with the case have confirmed that the individual is Rajaratnam.

    At an initial court appearance in U.S. District Court in Manhattan, Assistant U.S. Attorney Josh Klein sought detention for Rajaratnam, saying there was "a grave concern about flight risk" given Rajaratnam's wealth and his frequent travels around the world.

    His lawyer, Jim Walden, called his client a "citizen of the world," who has made more than $20 million in charitable donations in the last five years and had risen from humble beginnings in the finance profession to oversee hedge funds responsible for nearly $8 billion.

    Walden promised "there's a lot more to this case" and his client was ready to prepare for it from home. Rajaratnam lives in a $10 million condominium with his wife of 20 years, their three children and two elderly parents. Walden noted that many of his employees were in court ready to sign a bail package on his behalf.

    Rajaratnam -- born in Sri Lanka and a graduate of University of Pennsylvania's Wharton School of Business -- has been described as a savvy manager of billions of dollars in technology and health care hedge funds at Galleon, which he started in 1996. The firm is based in New York City with offices in California, China, Taiwan and India. He lives in New York.

    According to a criminal complaint filed in U.S. District Court in Manhattan, Rajaratnam obtained insider information and then caused the Galleon Technology Funds to execute trades that earned a profit of more than $12.7 million between January 2006 and July 2007. Other schemes garnered millions more and continued into this year, authorities said.

    Bharara said the defendants benefited from tips about the earnings, earnings guidance and acquisition plans of various companies. Sometimes, those who provided tips received financial benefits and sometimes they just traded tips for more inside information, he added.

    The timing of the arrests might be explained by a footnote in the complaint against Rajaratnam. In it, an FBI agent said he had learned that Rajaratnam had been warned to be careful and that Rajaratnam, in response, had said that a former employee of the Galleon Group was likely to be wearing a "wire."

    The agent said he learned from federal authorities that Rajaratnam had a ticket to fly from Kennedy International Airport to London on Friday and to return to New York from Geneva, Switzerland next Thursday.

    Also charged in the scheme are 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.

    The others charged in the case were identified as Danielle Chiesi, 43, of New York City, and Mark Kurland, 60, also of New York City.

    According to court papers, Chiesi worked for New Castle, the equity hedge fund group of Bear Stearns Asset Management Inc. that had assets worth about $1 billion under management. Kurland is a top executive at New Castle.

    Kumar's lawyer, Isabelle Kirshner, said of her client: "He's distraught." He was freed on $5 million bail, secured in part by his $2.5 million California home.

    Kerry Lawrence, an attorney representing Moffat, said: "He's shocked by the charges."

    Bail for Kurland was set at $3 million while bail for Moffat and Chiesi was set at $2 million each. Lawyers for Moffat and Chiesi said their clients will plead not guilty. The law firm representing Kurland did not immediately return a phone call for comment.

    A message left at Goel's residence was not immediately returned. He was released on bail after an appearance in California.

    A criminal complaint filed in the case shows that an unidentified person involved in the insider trading scheme began cooperating and authorities obtained wiretaps of conversations between the defendants.

    In one conversation about a pending deal that was described in a criminal complaint, Chiesi is quoted as saying: "I'm dead if this leaks. I really am. ... and my career is over. I'll be like Martha (expletive) Stewart."

    Stewart, the homemaking maven, was convicted in 2004 of lying to the government about the sale of her shares in a friend's company whose stock plummeted after a negative public announcement. She served five months in prison and five months of home confinement.

    Prosecutors charged those arrested Friday with conspiracy and securities fraud.

    A separate criminal complaint in the case said Chiesi and Moffat conspired to engage in insider trading in the securities of International Business Machines Corp.

    According to another criminal complaint in the case, Chiesi and Rajaratnam were heard on a government wiretap of a Sept. 26, 2008, phone conversation discussing whether Chiesi's friend Moffat should move from IBM to a different technology company to aid the scheme.

    "Put him in some company where we can trade well," Rajaratnam was quoted in the court papers as saying.

    The complaint said Chiesi replied: "I know, I know. I'm thinking that too. Or just keep him at IBM, you know, because this guy is giving me more information. ... I'd like to keep him at IBM right now because that's a very powerful place for him. For us, too."

    According to the court papers, Rajaratnam replied: "Only if he becomes CEO." And Chiesi was quoted as replying: "Well, not really. I mean, come on. ... you know, we nailed it."

    The criminal complaints in the case also captured what authorities said were efforts by the defendants to hide their conversations from authorities.

    In one conversation, Chiesi was heard telling Rajaratnam that she was "glad that we talk on a secure line, I appreciate that," to which Rajaratnam replied: "I never call you on my cell phone," the complaint said. It added that Chiesi said she was "nervous" about being investigated.
    sigpic

    I'm the gatekeeper, are you the keymaster?

    Servicing what feels like one giant Mental Hospital......... going on 3 years.

  • #2
    Ryan's high end client ?
    Today's Quote:

    "The difference between stupidity and genius is that genius has its limits."
    Albert Einstein

    Comment


    • #3
      Wow...think he was able to spring bail?

      oops, read a little farther, eh just a small ding to his bank account.

      Comment


      • #4
        Originally posted by mikeymedic View Post
        Wow...think he was able to spring bail?

        oops, read a little farther, eh just a small ding to his bank account.
        I just don't get it 1.3 Billion in assets and you risk it all for 25mill.

        Comment


        • #5
          Ryan's high end client ?
          __________________
          Dam- You beat me to it lol
          MDRDEP:

          There are no stupid questions, but there sure are a lot of inquisitive idiots.

          Comment


          • #6
            Why doesn't this news surprise me???
            "Abandon your animosities and make your sons Americans." - Robert E. Lee, 1865

            Comment


            • #7
              Originally posted by JD_TO View Post
              I just don't get it 1.3 Billion in assets and you risk it all for 25mill.
              The Masters of the Universe believe that they never will be caught.
              Facts do not cease to exist because they are ignored. -- Aldous Huxley
              Two things are infinite: the universe and human stupidity. -- Albert Einstein

              Comment


              • #8
                Serves his greedy arse right...He's about to lose more money and his name in the finacial industry...


                This is the law enforcement I'd like to get into, if I don't end up in a dept...Financial crimes and terrorism investigations are where it's at...
                sigpic

                Comment


                • #9
                  Originally posted by Southflaguy View Post
                  This is the law enforcement I'd like to get into, if I don't end up in a dept...Financial crimes and terrorism investigations are where it's at...
                  If you want to investigate financial crimes, you should study accounting or finance. The police academy will not prepare you for white-collar investigations.
                  Facts do not cease to exist because they are ignored. -- Aldous Huxley
                  Two things are infinite: the universe and human stupidity. -- Albert Einstein

                  Comment


                  • #10
                    Originally posted by DAL View Post
                    If you want to investigate financial crimes, you should study accounting or finance. The police academy will not prepare you for white-collar investigations.
                    That really doesn't help either.

                    I have 15 years in banking, a MBA with a concentration in Finance, a BS in finance and hold the CFA designation. I've personally unwound $1,000,000 in financial fraud with two non profits I've served on the board with, and put myself through a police academy.

                    It's who you blow, not what you know.

                    I've laid myself on a silver platter to law enforcement, and at this point will be happy if I can be a reserve so I can write parking tickets.

                    Bitter????? I use to be I guess. I've realized a while ago there is a pecking order to get into these kinds of investigations and in no way are financial and accounting credentials a part of it.

                    I encourage anyone in law enforcement to get into this kind of investigation. You guys are outnumbered greatly, and you don't have a chance. It's just not focused on. Violence and little children are the focus, not the protection of the economy, so countless amounts of funds are ripe for the picking from criminals' point of view.

                    No one it watching the barn.

                    I would get caught stealing a handful of cash out of a till, but no one would know if I walked away with millions of dollars until it was too late.

                    There is just professional intuition one has from being in the system/profession that isn't going to be achieved by just getting training in finance and accounting.

                    The FBI has all the best candidates, but those are only the ones that managed to get into the FBI. So how many CPA's out there do you think the FBI has relative to the rest of the world?

                    There is just WAY too much TRUST given to the financial services industry. Relative to LEOs there is A LOT of blind authority given to money managers, bankers, and financial consultants. These people can destroy lives far more effectively than a LEO can. A LEO can take a life, but he can't usually destroy one and lay waist to an entire host of people's economic means.

                    I've come to realize it has always been this way, and it always will. So it really doesn't matter I'm not part of the solution. Even if I was I could only impact those crimes that come across my desk. There just isn't enough of the financial savvy willing to step onto the LEO side of the equation.

                    Here's the big difference I see with the challenge presented to law enforcement.

                    There are two identical offices each is a crime scene. One is a crime of violence and there is a dead body on the floor with blood everywhere.

                    The other is a crime of stealing $1,000,000,000 with locked office draws with all the documents needed to connect all the dots and nail all the offenders.

                    The ONLY thing investigators have to go on is that which they personally observe by walking in the office.

                    Which of the two crimes will go undetected?

                    The ONLY reason I was able to solve the crimes I did was because I sat on the board of directors and no one could deny me information. If I didn't like what I was hearing from the offenders I simply went to the bank and got the information myself since I was a name on the signature cards. Without that, there was nothing stopping them.

                    Sorry. I'll stop now.
                    _____________
                    "Corruptisima republica plurimae leges."

                    "The more corrupt the state, the more numerous the laws."
                    - Cornelius Tacitus

                    Comment


                    • #11
                      You can be a reserve and do financial investigations eventually. I have worked on some. Of course, they pale in comparison to what I found as a lawyer. We also have reserves who work on terrorism.

                      The FBI and Secret Service used to like to hire accountants as special agents, but perhaps you just didn't fit into the law-enforcement mold. Federal agencies have quite a few unsworn positions in financial fraud and intelligence/anti-terrorism, and a lot of them seek people with advanced degrees. They are all listed at http://www.usajobs.gov/
                      Facts do not cease to exist because they are ignored. -- Aldous Huxley
                      Two things are infinite: the universe and human stupidity. -- Albert Einstein

                      Comment


                      • #12
                        It took them two years to get this far. At least the big dogs are being brought down.

                        **************

                        U.S. Said to Target Wave of Insider-Trading Networks (Update2)
                        2009-10-19 15:43:06.376 GMT


                        (Adds IBM executive placed on leave in sixth paragraph.)

                        By Joshua Gallu and David Scheer
                        Oct. 19 (Bloomberg) -- Federal investigators are gearing up to file charges against a wider array of insider-trading networks, some linked to the criminal case against billionaire hedge-fund manager Raj Rajaratnam that shook Wall Street last week, people familiar with the matter said.
                        The pending crackdown, based on at least two years of investigation, targets securities professionals including hedge- fund managers, lawyers and other Wall Street players, the people said, declining to be identified because the cases aren’t public. Some probes, like the one focused on Rajaratnam, rely on wiretaps. Others stem from a secret Securities and Exchange Commission data-mining project set up to pinpoint clusters of people who make similar well-timed stock investments.
                        Investigators have struggled to build cases against large institutional investors such as hedge-fund managers, who often deflect regulatory queries about suspiciously timed bets, arguing they’re statistical flukes amid millions of trades. The case against Rajaratnam, built on recorded conversations within a web of alleged conspirators, offers a glimpse of how U.S.
                        investigators are using more aggressive tactics to cut through the blizzard of trading and trace the flow of information.
                        “If you’re going to shoot the king, you better shoot to kill,” said Bradley Bennett, a law partner at Baker Botts LLP in Washington who formerly focused on insider-trading cases as an SEC investigator. “If they’re going to take on a billionaire, they need to have the strongest possible cases. The defendant’s own words are the strongest possible evidence.”

                        Intel, McKinsey, IBM

                        SEC spokesman John Nester declined to comment, as did Alejandro Miyar, a spokesman for the Justice Department.
                        Rajaratnam, who founded the Galleon Group in 1997, was arrested with five alleged conspirators on Oct. 16 in what prosecutors called the biggest insider-trading ring targeting a hedge fund. Prosecutors said he and his firm reaped as much as
                        $18 million by investing on tips from a hedge fund, a credit- rating firm and employees within companies including Intel Capital, McKinsey & Co. and IBM Corp. IBM said today it put executive Robert Moffat, one of Rajaratnam’s alleged conspirators, on temporary leave following the charges.
                        Rajaratnam, born in Sri Lanka’s capital, Colombo, has a net worth of $1.3 billion, making him the 559th richest person in the world, according to Forbes Magazine. In the early years of this decade, Galleon ranked among the world’s 10 largest hedge funds, managing $7 billion at its peak in 2008.

                        No Plea Entered

                        Rajaratnam hasn’t yet entered a plea. His lawyer, Jim Walden, said last week that prosecutors are misconstruing the evidence and that the case isn’t as strong as they allege.
                        U.S. senators including Pennsylvania Democrat Arlen Specter have pressed regulators to more aggressively scrutinize hedge funds. Some of those concerns were spurred by the SEC’s decision in 2006 to close an insider-trading probe of Pequot Capital Management Inc., once the world’s biggest hedge- fund manager, after investigators said they lacked evidence to bring the case.
                        The SEC later reopened part of the inquiry focusing on whether Pequot abused information from a former Microsoft Corp.
                        employee. In August, Pequot and founder Arthur Samberg, 68, said they may be sued by the agency. Insider-trading claims would be “without merit,” they said.
                        Many cases begin when stock exchanges send the SEC reports on traders who place profitable bets shortly before corporate announcements. Someone who rarely trades may have difficulty explaining later what prompted an uncharacteristic investment.
                        Hedge funds, on the other hand, can more plausibly attribute their windfalls to skill or chance.

                        Blue Sheets

                        To overcome that hurdle, the SEC began using computer software about two years ago to sift hundreds of millions of electronic trading records, known as blue sheets, attached to the stock exchange reports about suspicious incidents, according to people familiar with the project. By looking for patterns in the library of data, they identified groups of traders who repeatedly made similar well-timed bets.
                        Once investigators find a cluster of correlated trades, they tap other sources of information to unravel how its members obtain and share tips, the people said. For example, if a group profits on trades before a series of corporate takeovers, the SEC may check so-called league tables listing which investment banks or law firms advised the deals. If one firm was involved in all of them, an employee there may be the source of the leak.

                        Data Mining

                        The data-mining strategy yielded one of its first cases in February, when the SEC and U.S. prosecutors charged takeover advisers at UBS AG and Blackstone Group LP with taking part in an $8 million insider-trading case, people familiar with the inquiry said. Authorities used a “novel” technique to detect the scheme, the SEC’s lead investigator on the case, Daniel Hawke, said at the time, without elaborating.
                        While the investigation of Rajaratnam didn’t stem from the data-mining project, it did start with the SEC’s identification of suspicious trades, people with knowledge of the case said.
                        Investigators developed at least one informant in the ring, who began meeting in November 2007 with agents from the Federal Bureau of Investigation, according to charging documents.
                        Prosecutors also obtained warrants for wiretaps, a level of surveillance typically reserved for organized crime, drug syndicates and terrorism prosecutions.
                        Prosecutors are also being helped by at least three of Rajaratnam’s former colleagues, the Wall Street Journal reported today, citing people familiar with the criminal investigation.
                        Those people include California hedge-fund managers Ali Far and Choo Beng Lee, the Journal said.

                        Further Surveillance

                        Surveillance during the probe of Rajaratnam, 52, led investigators to other suspects and more charges are likely, people familiar with the matter said. U.S. Attorney Preet Bharara said Oct. 16 the Justice Department will continue using wiretaps to root out insider-trading.
                        The SEC is adopting other strategies to crack difficult cases. SEC Enforcement Director Robert Khuzami, a former federal prosecutor who joined the agency in March, said last week that he’s seeking greater access to grand-jury evidence and wants to expand deal-making and cooperation with informants.
                        “Insider-trading cases are notoriously difficult to prosecute because the evidence is often circumstantial,” said Bill Mateja, a former Justice Department lawyer now at Fish & Richardson PC in Dallas. “If law enforcement is actively going to go out and target this with covert investigative techniques, I think it’s going to keep people on their toes.”
                        The filed cases are U.S. v. Rajaratnam, 09-02306, and U.S.
                        v. Chiesi, 09-02307, U.S. District Court for the Southern District of New York (Manhattan).

                        *T
                        For Related News and Information:
                        News about the SEC: NI SEC
                        Top financial stories: FTOP
                        For hedge funds and crime: TNI HEDGE CRIME News about SEC investigations: TNI SEC REGPROBE Top legal stories: TLAW Bloomberg legal resources: BLAW *T

                        --With assistance from David Glovin in New York. Editors: Alec McCabe, Steve Geimann.

                        To contact the reporters on this story:
                        Joshua Gallu in Washington at +1-202-624-1810 or [email protected]; David Scheer in New York at +1-212-617-2358 or [email protected].

                        To contact the editor responsible for this story:
                        Alec D.B. McCabe at +1-212-617-4175 or
                        [email protected].
                        _____________
                        "Corruptisima republica plurimae leges."

                        "The more corrupt the state, the more numerous the laws."
                        - Cornelius Tacitus

                        Comment


                        • #13
                          Originally posted by DAL View Post
                          You can be a reserve and do financial investigations eventually. I have worked on some. Of course, they pale in comparison to what I found as a lawyer. We also have reserves who work on terrorism.

                          The FBI and Secret Service used to like to hire accountants as special agents, but perhaps you just didn't fit into the law-enforcement mold. Federal agencies have quite a few unsworn positions in financial fraud and intelligence/anti-terrorism, and a lot of them seek people with advanced degrees. They are all listed at http://www.usajobs.gov/
                          I went down this path too late for LEO work. My 37th b-day just passed, and it took me too long to figure out how to interview for such positions before I started getting somewhere with my applications. I am too old to start 1811 status. The non sworn federal position pay cut is too great. I cannot be going federal.

                          In my bigger picture of things I really am most effective with non profits. They are most vulnerable, and I foresee being an asset to local institutions.

                          Anyway, I do love reading about this stuff. These people are so greedy they are trying to beat the system for inconsequential amounts relative to their total worth, and would pay hundreds of millions of dollars to get off just spending 30 days in jail.

                          Martha Stewart is the poster child of this. She claimed to be a victim of the system and a woman being targeted by a man’s industry. What the media failed to highlight was she was:
                          1) A former stockbroker.
                          2) A current sitting board member of the New York Stock Exchange at the time of the offense.
                          3) The head of a publicly traded company.

                          Those three items were only briefly disclosed in media coverage at the very beginning of the scenario then it was never mentioned again.

                          I suspect the jury was given this information and sent her up the river.
                          _____________
                          "Corruptisima republica plurimae leges."

                          "The more corrupt the state, the more numerous the laws."
                          - Cornelius Tacitus

                          Comment

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