Billionaire's Arrest Prompts Hedge Fund Scandal

Billionaire investor Raj Rajaratnam was arrested last month and charged with running the biggest insider trading scheme involving a hedge fund. Twenty people from across corporate America have now been charged or arrested in connection with the case, and the scandal now involves some of the country's best-known companies. Host Liane Hansen speaks with Joanna Chung, U.S. financial correspondent for the Financial Times.

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LIANE HANSEN, host:

A massive case of financial fraud is stirring up the hedge fund industry. Billionaire investor Raj Rajaratnam was arrested last month and charged with running the biggest insider trading scheme involving a hedge fund. Twenty people from across corporate America have now been charged or arrested in connection with the case, and the scandal now involves some of the country's best known companies.

Joanna Chung is the U.S. financial correspondent for the Financial Times. She's been following the story and joins us from her office in New York. Welcome to the program.

Ms. JOANNA CHUNG (Financial Times): Good to be here.

HANSEN: Federal authorities have described this case as the biggest insider trading ring in a generation. What is it that makes this insider trader case stand out?

Ms. CHUNG: What's interesting to me is that, yes, Raj Rajaratnam is one of the bigger names that has emerged, who has been arrested, but there's an increasing recognition of the role played by a host of supporting actors, if you will, which is another significant factor in this case, that it's not just hedge funds. It's not just a small group of people on Wall Street, but it is involving, allegedly, a whole group of people from across corporate America, some of the biggest names.

HANSEN: Big names like what?

Ms. CHUNG: Well, some of the people who have allegedly passed on information have come from IBM, Mackenzie, which is a huge consulting company, Intel. I mean, these are household name companies. And a lot of the stocks that we're talking about that were traded on involve big companies like Hilton and Google.

HANSEN: Even though this doesn't center around one person, like the Bernie Madoff case, there is the gentleman Raj Rajaratnam, who headed the hedge fund at the center of this case. What do you know about him? What can you tell us about him?

Ms. CHUNG: Well, he is a billionaire hedge fund investor. I mean, he has a huge reputation in the technology industry. And he's kind of worked his way up into a really prominent position in the hedge fund industry, which is why it was such a shock when he was arrested and accused of doing these things.

HANSEN: Can you tell us what's happening in the case right now? Give us a little overview.

Ms. CHUNG: We've had 20 people arrested so far. There are more arrests expected. Right now the prosecutors are in the process of trying to get more people to come forward. If you look at some of the complaints that have been filed so far, you see all the people that we've spoken about so far and we've seen in the press, but you see also dozens and dozens of unnamed so-called co-conspirators. So, that's an indication that this is far from over.

HANSEN: Government officials are saying this case marks the first use of court-authorized wiretaps in the investigation of an insider trading case. What are the implications of this, the government's more aggressive investigative efforts?

Ms. CHUNG: Well, the willingness to use, you know, tools and techniques more commonly associated with non-white collar crime suggests very strongly that law enforcement officials are very serious about cracking down on financial crime. I think it is an indication that there's a tone from the very top that financial crime is going to be something that prosecutors and regulators will make a top priority to chase after.

HANSEN: Joanna Chung covers the U.S. markets for the Financial Times, and she joined us from her office in New York. Thanks very much.

Ms. CHUNG: Thank you.

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