The billionaire founder of the Galleon Group hedge fund and five others were arrested in a $20 million insider trading scandal, federal authorities said Friday.
Raj Rajaratnam, 52, ranked by Forbes magazine last year among the 400 richest Americans, was charged with conspiracy and securities fraud along with current and former executives from Bear Stearns, IBM, Intel Capital and McKinsey & Co., according to federal prosecutors.
Rajaratnam, was ranked No. 559 by Forbes magazine this year among the world's wealthiest billionaires, with a $1.3 billion net
worth.
"This case represents the largest hedge-fund insider trading case ever prosecuted," said Preet Bharara, the United States Attorney for the Southern District of New York, in a press conference with Joseph Demarest, assistant director in charge of the FBI's New York field division and Robert Khuzami, director of enforcement for the U.S. Securities and Exchange Commission.
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.
The suspects are accused of using secret tips or insider information to trade in shares of companies including Akami, Google Inc., AMD., and Polycom Inc., according to court papers.
"In some cases [they traded tips] for money, in some cases for other valuable insider information," said Bharara.
Also charged in the reputed scam are Danielle Chiesi, who had worked for New Castle, an equity hedge fund group of Bear Stearns, IBM senior vice president Robert Moffat, Mark Kurland, another top executive at New Castle, Rajiv Goel, who had worked for Intel Capital, the investment arm of Intel, and Anil Kumar, who had worked as a director of McKinsey and Company.
"Goel has been placed on administrative leave as we look into this matter," said Intel spokesman Chuck Mulloy. "Intel was not aware of this case and was not contacted by investigators. If we are contacted, we will cooperate."
According to the SEC, Goel gave Rajaratnam inside information about Intel's quarterly earnings and a pending deal with Clearwire, the wireless-network operator, in which Intel owns a stake. Goel allegedly made $250,000 from his participation in the scheme.
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View the entire list of defendants and charges here.
The FBI used wire tapes of cell phones and eventually a confidential informant to uncover alleged examples of insider trading going back to 2006, according to officials.
"The defendants operated in a cozy world of you scratch my back, i'll scratch your back," said Bharara. "Greed in some cases, is not good -- this case should be a wake up call to Wall Street. [The suspects] may have been privy to a lot of confidential information, but there was one secret they did not know -- we were listening."
