Hedge Fund Manager Raj Rajaratnam: Guilty on All Counts of Insider Trading

In a high-profile case of insider trading, hedge fund manager Raj Rajaratnam has been found guilty on all 14 counts of securities fraud and conspiracy.

(May 11, 2011) — Raj Rajaratnam, the hedge-fund tycoon and co-founder of Galleon Group LLC at the heart of a US insider-trading investigation, has been found guilty of all counts against him.

The counts against him included nine of securities fraud and five of conspiracy to commit securities fraud.

After hearing the evidence that Rajaratnam participated in a seven-year conspiracy to trade on illegal tips from corporate executives, bankers, consultants, traders and directors of public companies, the Manhattan jury issued the guilty verdict.

The investigation is the result of a strong prosecution, Reuters reported, with FBI phone taps and testimony of three former friends and associates of Rajaratnam. Manhattan US Attorney Preet Bharara has indicated effort to crack down on insider-trading scandals.

Rajaratnam faces a prison term of up to 25 years when he is sentenced by presiding US District Judge Richard Holwell. The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York.

This and other cases of alleged insider-trading on Wall Street  have pushed institutional investors around the country to keep a closer eye on their investments while rethinking risk controls. Many analysts believe the latest string of FBI-led probes over insider-trading draws attention to the risk controls that fund managers have integrated when dealing with third-party research providers, and the investigation may encourage them to heighten their standards. “I think the most important control is for senior executives to clearly communicate to employees that 1) insider trading is not tolerated; and 2) employees have an affirmative duty to escalate their receipt of information that is even potentially material and non-public,” Joshua E. Broaded, principal consultant at ACA Compliance Group, told aiCIO in December, after three hedge funds were raided the previous month as part of a probe by the FBI, the Manhattan US Attorney’s office, and the Securities and Exchange Commission. “Advisers that use expert matching services, or that have other types of potential exposure to inside information, should think carefully about how they can demonstrate a good corporate culture and an appropriate set of proactive controls,” he said.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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