One Of U.S.' Richest Men , 5 Others, Charged In Alleged Insider Trading Scheme

A hedge fund manager who is one of the richest men in the U.S. was among six investors charged by the Justice Department with making $20 million through an insider trading scheme.

Raj Rajaratnam, 52, of New York City and the managing member of Galleon Management, was arrested Friday morning by Federal Bureau of Investigation agents along with the five other defendants.

According to the U.S. attorney's press release, members of the group were overheard receiving insider information by federal agents over wiretaps and through recordings made by a cooperating witness. They allegedly then used the information not available to the public to trade in the shares of companies like Google Inc., Hilton Hotels and Advanced Micro Devices.

Rajaratnam, who was born in Sri Lanka, was ranked as the 236th richest person in the U.S. in the 2009 Forbes 400, with an estimated net worth of $1.5 billion.

An excerpt from the press release from the U.S. Attorney for the Southern District of New York:

For example, the CW learned from a Moody's analyst, on July 2, 2007, that Hilton was going to be taken private. The CW then informed RAJARATNAM of this fact, telling him that it was a "sure thing." Based on this information, RAJARATNAM caused Galleon to purchase hundreds of thousands of shares of Hilton stock, reaping total profits of approximately $4 million.

 

Law-enforcement officials quoted from a transcript of a wiretapped conversation as part of their allegation that the participants in the scheme knew they were breaking the law.

Citing a conversation involving one of those who was also arrested on Friday, Danielle Chiesi, 43, of New York City, the U.S. attorney's press release said:

On August 27, 2008, CHIESI called a co-conspirator (the "CC") to provide information regarding the AMD reorganization. CHIESI said, "You just gotta trust me on this. Here's how scared I am about what I'm gonna tell you on AMD." The CC asked when the announcement would take place, and CHIESI replied, "September." CHIESI said, "I swear to you in front of God... You put me in jail if you talk." Later, CHIESI said, "I'm dead if this leaks. I really am... and my career is over. I'll be like Martha [expletive] Stewart."

In a statement, U.S. Attorney for the New York City area, Preet Bharara, clearly wanted to put the fear of a federal prosecution in the minds of Wall Street executives:

"Today, we take decisive action against fraud on Wall Street. This case should be a wake up call for Wall Street. It should be a wake up call for every hedge fund manager and every Wall Street trader and every corporate executive who is even thinking about engaging in
insider trading. As the defendants in this case have now learned the hard way, they may have been privy to a lot of confidential corporate information, but there was one secret they did not
know: we were listening. Today, tomorrow, next week, the week after, privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important
question: Is law enforcement listening?"