Hedge Fund Titan Guilty In Insider Trading Case

A jury in Manhattan Wednesday convicted hedge fund titan Raj Rajaratnam on all 14 counts of conspiracy and securities fraud. Prosecutors say the founder of the Galleon Group made more than $60 million in illegal profits using inside information gleaned from networks of corporate insiders. Rajaratnam's lawyers promised to appeal. He is the most prominent figure to be convicted in the government's ongoing insider trading investigation.

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And I'm Robert Siegel.

One of the richest and most powerful men on Wall Street is facing many years in prison today. Raj Rajaratnam, the billionaire founder of the Galleon Group hedge fund company, was convicted for his role in an insider trading case. Prosecutors say Rajaratnam relied on a network of friends and associates at some of the country's best known companies and consulting firms.

NPR's Jim Zarroli reports.

JIM ZARROLI: The jury convicted Rajaratnam on all of the 14 counts against him: nine counts of securities fraud and five counts of conspiracy. Afterward, his lawyer, John Dowd, tried hard to put a positive spin on the verdict. He pointed out that prosecutors had originally considered charging his client with 37 counts but had pared that down over time.

Mr. JOHN DOWD (Partner, Akin Gump Strauss Hauer & Feld LLP): So the score is, you know, 23-14 in favor of the defense. We'll see you in the second circuit. Thank you.

ZARROLI: The second circuit was a reference to the Second Circuit Court of Appeals where Dowd said he would appeal the verdict. While he spoke, his rotund 53-year-old client stood nearby without speaking. The government had accused Rajaratnam of repeatedly trading on inside information he'd obtained through friends and associates at companies like Intel, Goldman Sachs and McKinsey & Company.

Former Securities and Exchange Commission member Joseph Grundfest says the case hinged on thousands of hours of recorded conversations between Rajaratnam and his contacts, and Grundfest says, in the end, that was powerful evidence against him.

Mr. JOSEPH GRUNDFEST (Former Securities and Exchange Commission): Even though as a technical matter Rajaratnam was never called to the witness stand, he in effect testified against himself over and over and over again when the jury heard his voice on the tape.

ZARROLI: But the evidence extended beyond the tapes. The government reached plea deals with some of Rajaratnam's contacts, and several of them testified against him.

Rita Glavin of the law firm Vinson & Elkins, who formerly headed the Justice Department's criminal division, says the witnesses included people whose voices were heard on the tapes.

Ms. RITA GLAVIN (Partner, Vinson & Elkins, LLP): It's one thing when you just have the tapes. It's another when you have the people who were caught on the tapes explaining the tapes. And that's powerful evidence that you rarely see an acquittal in that type of circumstance.

ZARROLI: Rajaratnam's lawyers had argued that much of the information he traded on was in the public record or not material to the company's stock price, but the tapes indicated that he and his contacts took steps to cover their tracks whenever possible.

One witness said that in exchange for tips, Rajaratnam had paid him half a million dollars a year through an offshore account in his housekeeper's name.

Prosecutors had argued that Rajaratnam, who was born in Sri Lanka and is still a citizen there, was a flight risk and should stay in jail, but the judge chose to let him go free wearing an electronic monitoring bracelet.

Joseph Grundfest, who now teaches at Stanford Law School, says his conviction will make it easier for the government to pursue other insider-trading cases. Rajaratnam is likely to face at least two decades in prison, and Grundfest says Rajaratnam's fate could throw a scare into other defendants and persuade them to make deals with the government.

Mr. GRUNDFEST: Either you walk in, you sit down with the U.S. attorney, and he says I have one word for you: Rajaratnam. I mean, do you want to go the way of Rajaratnam? It then becomes a very interesting conversation.

ZARROLI: Ultimately, that could make it easier for the government to accomplish what many people believe is its real goal: to catch even bigger fish in the hedge fund business and stop what they say has become an epidemic of insider trading.

Jim Zarroli, NPR News, New York.

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