Posts tagged “galleon”

Rajaratnam Trial To Start March 8

February 11th, 2011

Galleon Group founder Raj Rajaratnam’s trial on insider-trading charges has been delayed by a week.

U.S. District Judge Richard Holwell, who is presiding over the case, issued an order setting a new start day of March 8. The trial had been set to begin on Feb. 28.

It is unclear why Holwell chose to delay the trial; he did not offer a reason. But this week, lawyers for both sides and some witnesses have been coming to the Manhattan courthouse to work on pretrial matters. Reuters reports that attorney scheduling was the reason for the move.

Among those matters is an outstanding subpoena issued by Rajaratnam’s legal team to consulting giant McKinsey & Co. The two sides yesterday said they had reached an agreement on most matters, while Holwell sided with McKinsey on some of Rajaratnam’s document requests.

McKinsey had been fighting the subpoena, saying it sought “troves of irrelevant, unspecific and inadmissible documents.” Rajaratnam’s team shot back that the case has McKinsey “written all over it;” one of the 19 people to plead guilty in the case is a former senior director at the firm, and a former head of McKinsey, Rajat Gupta, is alleged to have passed confidential tips to Rajaratnam, although he himself has not been charged.

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Prosecutors: Witnesses Offer Evidence Of Rajaratnam’s Insider Trading

February 9th, 2011

Raj Rajaratnam

The noose around Raj Rajaratnam appeared to tighten further this week as prosecutors revealed some of the evidence they plan to use against the Galleon Group founder.

At least three cooperating witnesses have provided evidence of insider-trading by Rajaratnam, assistant U.S. Attorney Jonathan Streeter wrote in court documents. Two of those three are former Galleon employees.

One, Michael Cardillo, pleaded guilty to insider-trading charges last month as part of a plea deal. Streeter said that he approached prosecutors in October to discuss cooperating.

“Members of the trial team met with Cardillo and debriefed him about evidence he had against Rajaratnam,” Streeter wrote. “This included Rajaratnam’s trading based on inside information relating to Proctor & Gamble, as well as Cardillo had against another co-conspirator not previously identified by the government to the defendant.”

Streeter made the filing in response to a bid by Rajaratnam’s lawyers seeking to exclude discussion of four stocks from the trial, including Procter & Gamble. The trial is set to begin on Feb. 28.

According to another cooperating witness, former McKinsey & Co. consultant Anil Kumar, Rajaratnam went to jail just days after another deal about which he had advanced knowledge. While it is unclear whether Rajaratnam traded or sought to trade on that information, about Cisco System’s acquisition of Starent Networks, prosecutors said that Rajaratnam told Kumar that he knew about the deal.

Cisco announced its purchase on Oct. 13, 2009, three days before Rajaratnam’s arrest.

Streeter said Kumar’s claims “had very recently been corroborated through evidence supplied by Adam Smith,” another former Galleon trader who is cooperating in the investigation.

Kumar himself made a filing this week, asking a judge to junk a subpoena from Rajaratnam’s lawyers seeking documents from his McKinsey days. McKinsey has also objected to the subpoena.

Kumar called the request “excessively burdensome,” and another, seeking his tax returns and personal trading records, “at most…an attempt to impeach Mr. Kumar’s credibility.”

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Rajaratnam Brother An Alleged Co-Conspirator In Insider-Trading Case

February 3rd, 2011

Raj Rajaratnam

Prosecutors are turning up the heat on Galleon Group founder Raj Rajaratnam just weeks before he goes on trial for insider-trading: It has emerged that Rajaratnam’s younger brother, Ragakanthan, is an unindicted co-conspirator identified in the most recent guilty pleas in the case.

The government has not publicly identified Ragakanthan Rajaratnam as “CC-1″ in the charges against former Galleon trader Michael Cardillo. But The Wall Street Journal reports that the co-conspirator is, in fact, the former Galleon chief’s brother.

Ragakanthan Rajaratnam has not been charged with any wrongdoing. But according to the Cardillo charges, the brothers Rajaratnam traded on confidential information about J.M. Smucker Co. and Procter & Gamble during Ragakanthan Rajaratnam’s three years as a Galleon portfolio manager.

Cardillo, who pleaded guilty last week, worked for Ragakanthan Rajaratnam and executed his trades, according to the charges against him.

Ragakanthan Rajaratnam, known as “R.K.” during his Galleon days, is now a vice president in Clorox Co.’s marketing department. He worked at General Mills, Kraft Foods and ConAgra Foods before joining Galleon in 2006.

Raj Rajaratnam’s trial on 14 insider-trading counts is set to begin on Feb. 28. In the last few weeks, prosecutors have moved to isolate the biggest fish they’ve nabbed in the whole investigation, winning guilty pleas from his former co-defendant, Danielle Chiesi, and two former Galleon traders, including Cardillo. All told, 19 people have pleaded guilty in the case; seven, including Rajaratnam, are fighting the charges.

The government has also turned up the heat on Rajaratnam’s other brother, Regnan, another former Galleon employee. In December, John Kinnucan, the research firm chief who publicly rejected a Federal Bureau of Investigation offer to cooperate in the investigation, said he received a subpoena seeking information about Sedna Capital Management, a now-defunct hedge fund founded by Regnan Rajaratnam.

It is unclear whether prosecutors intend to pursue charges of any kind against either Ragakanthan or Regnan Rajaratnam, or if they hope the increased pressure will convince Raj Rajaratnam to seek a plea deal.

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SEC Wants Judge To Force Rajaratnam To Hand Over Wiretaps

December 22nd, 2010

Rajaratnam and Chiesi

Having lost his fight to keep thousands of wiretaps out of his criminal trial, Galleon Group founder Raj Rajaratnam will now have to renew his fight to keep them out of the hands of the Securities and Exchange Commission.

The SEC yesterday demanded that Rajaratnam and former co-defendant Danielle Chiesi, both accused of insider-trading, turn over some of the 18,150 wiretaps that they received from prosecutors in the crimin

al case. And it seems likely that the two will lose at least the first round: The judge presiding over the civil case, U.S. District Judge Jed Rakoff, had ordered them to turn over the taps even before U.S. District Judge Richard Holwell, who is overseeing the criminal case, ruled on their legality.

received an at least temporary reprieve when a federal appeals court ruled that Rakoff erred by granting the SEC’s request before Holwell ruled. But now that Holwell has ruled that the wiretaps were, in fact, legal, it is unclear that Rajaratnam and Chiesi will still have the appeals court’s ear.

“Given that the legality of the wiretaps has now been established, and given that the SEC is only seeking relevant intercepts, the SEC’s ‘significant’ right to obtain the relevant intercepts outweighs whatever arguable remaining privacy interests defendants and others may have,” the agency said in its filing.

“The SEC’s significant right of access to relevant, legally intercepted communications relating to the defendants’ insider trading scheme, and the substantial prejudice it will suffer if deprived of these intercepts, clearly outweighs any remaining, diminished privacy interests implicated in disclosing the relevant intercepts. Without the recordings, the SEC likely will be deprived of important admissions and in many instances the best, most direct evidence of wrongdoing.”

Rajaratnam and Chiesi may reprise their earlier arguments against giving the SEC the taps, noting that the agency lacks the authority to use wiretaps.

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Federal Insider-Trading Probe Kills Loch Capital Management

December 9th, 2010

Loch going extinct?

Ironically, Boston-based Loch Capital Management doesn’t appear to be a target of the Justice Department’s massive insider-trading investigation. Oh well!

The hedge fund, one of three raided by the Federal Bureau of Investigation two weeks ago, will lay off most of its staff at the end of the year, Hedge Fund Alert reports. A spokesman for Loch told HFA that “no decision has been made to close” the firm, but declined to comment on the report of layoffs.

Loch currently employs 14 people. According to HFA, most of them will be out of a job after Dec. 31.

Even before the raid last month, it had been a difficult year for Loch. The firm, headed by Timothy and Todd McSweeney, suffered significant redemption requests following the arrest and guilty plea of the brothers’ longtime friend, Steven Fortuna, in the Galleon Group insider-trading case. Fortuna was the head of Boston hedge fund S2 Capital Management and is a key witness in the Galleon case.

The firm’s assets under management have slipped to $200 million from a peak of $2 billion.

News of the layoffs comes just days after Loch became the third of the three hedge funds raided on Nov. 22 to say that it had been assured by the government that it was not a target of the probe. The firm also said it had stopped using expert networks, which are among the focuses of the insider-trading investigation.

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Prosecutors Win Right to Use Rajaratnam Wiretaps

November 26th, 2010

Raj Rajaratnam

The winning streak of Galleon Group hedge fund founder Raj Rajaratnam came to an end on Wednesday when federal prosecutors won their bid to present secret recordings in the upcoming insider-trading criminal trial.

U.S. District Judge Richard Holwell supported the use of wiretaps by prosecutors to uncover a fraudulent insider trading racket, even though the order does not specifically authorize wiretaps to investigate insider trading alone.

He rejected defense arguments that the wiretaps were poisoned because FBI agent B.J. Kang had misled a different judge who authorized them in March 2008 about their need, and were unnecessary because the U.S. Securities and Exchange Commission was pursuing its own civil fraud case without them.

While finding it “troubling” that prosecutors withheld details of the SEC probe, Holwell allowed the wiretaps of more than 2,000 conversations. He said that because much of the alleged scheme was conducted by phone, investigators were unlikely to fully uncover it by conventional means.

“Disclosure of all the details of the SEC’s investigation that the government recklessly omitted would ultimately have shown that a wiretap was necessary and appropriate,” Holwell wrote in his 68-page opinion.

Danielle Chiesi, a co-defendant and former trader with New Castle Funds LLC, had also sought to suppress the wiretaps.

Jim McCarthy, a spokesman for Rajaratnam, declined to comment. Alan Kaufman, a lawyer for Chiesi, declined immediate comment. A spokeswoman for U.S. Attorney Preet Bharara in Manhattan said that office does not discuss ongoing cases.

Rajaratnam and Chiesi face up to 20 years in prison if convicted on charges including securities fraud and conspiracy. A trial is scheduled for January 17.

“The ruling significantly increases the pressure on the defendants to consider whether to plead guilty,” said David Siegal, a partner at Haynes and Boone LLP in New York and a former federal prosecutor.

“Recordings of the precise words spoken by a tipper and tippee in an insider trading case can be powerful evidence to demonstrate criminal intent,” Siegal continued. “Nevertheless, a sentence arising from a guilty plea may be so severe that a defendant may choose to go to trial anyway.”

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Boo Hoo! Rajaratnam Moll Cries Over Miranda Rights

November 24th, 2010

Raj and Danielle

Nothing like high-paid consultants suddenly getting all dumb about their rights as they are being arrested.  That’s the sob story Danielle Chiesi, former hedge fund consultant and insider-trading co-defendant of Galleon Group founder Raj Rajaratnam, is giving in her first testimony on the stand.  Her lawyers are trying to suppress her statements made on the morning of her arrest.

Chiesi, formerly of New Castle Partners, said she was not informed of her Miranda rights for 90 minutes. Five Federal Bureau of Investigation agents woke her at 6 a.m. on Oct. 16, 2009, and told her she was being arrested.

During that time, Chiesi said the agents questioned her and offered her an opportunity to cooperate in the probe. She said the agents wanted her to place a call—which would be recorded—to a person on the West Coast. Chiesi did not identify that person.

Prosecutor Reed Brodsky countered that Chiesi was advised of her rights twice and that she only remembers the second. But U.S. District Judge Richard Holwell would not allow Brodsky to question her about the information covered during the first 90 minutes she was questioned in her Manhattan apartment.

Unlike Rajaratnam—who answered only monosyllabically during a pro-forma hearing earlier this year about a potential conflict of interest on the part of his lawyers—Chiesi testified at length and in some detail. She even admitted that she briefly considered accepting a deal and wearing a wire.

Chiesi, who admitted being nervous on the stand, said she considered taking the FBI agents, who she called “very nice,” up on their offer to cooperate. She also noted that at least one of them, “Claire,” won the affections of her usually antisocial cat.

“She’s usually very mean to people, and now I’m getting arrested and she’s in a good mood,” Chiesi said.

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Identity Revealed: “Tipper X” Filed Guilty Plea Last Year in Galleon Case

November 16th, 2010

Tipper X filed guilty plea last year. He is Thomas Hardin.

We can never seem to go long before reporting another development in the fascinating insider trading case of Galleon Partners and its founder Raj Rajaratnam. We have now learned the identity of the infamous “Tipper X”: he is Thomas Hardin, a former trader at hedge fund Lanexa Global Management and the link between the two alleged interlocking insider-trading rings in the case.

Hardin and a second defendant, Franz Tudor, entered their pleas last year. Tudor is one of the cooperating witnesses who wore a wire for prosecutors. Hardin pleaded guilty on Dec. 21; Tudor entered his plea on Oct. 29 last year.

“When greed leads hedge funds and other market professionals to illegally trade on inside information, the SEC will take aggressive action,” Robert Khuzami, enforcement director at the agency, said.

Hardin and Tudor, whose agreement to plead guilty was first reported earlier this year, bring to 14 the number of people who have pleaded guilty in the case, which has ensnared 23 people, including Galleon founder Raj Rajaratnam. Both men face up to 25 years in prison on the conspiracy and securities fraud counts, although prosecutors plan to ask for leniency on account of their cooperation.

Both men—and Hardin’s former employer Lanexa —have also been sued by the Securities and Exchange Commission. According to the SEC, Hardin’s illegal trades on behalf of Lanexa earned the hedge fund more than $1 million. Lanexa fired Hardin in January 2009, it said.

According to prosecutors, Hardin received insider tips about Hilton Worldwide, Google and Kronos Worldwide both from Roomy Khan, the former Galleon employee and Intel Corp. executive linked to Rajaratnam and his alleged side of the insider trading rings, as well as from Gautham Shankar, a former trader at Schottenfeld Group and an alleged member of the insider-trading ring prosecutors say was led by former Galleon trader and Incremental Capital founder Zvi Goffer. That makes him the only known link between the two alleged circles.

Raj Rajaratnam

Tudor is a former trader at Galleon and also worked at Schottenfeld and Goffer’s Incremental Capital. Tudor reportedly wore a wire to record conversations he had with Goffer and Michael Kimelman, also of Incremental. Both Goffer and Kimelman, and five other linked to the so-called Goffer circle, have pleaded not guilty in the case, as has Rajaratnam.

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The Prosecutors Strike Back in Galleon Case

October 29th, 2010

Raj Rajaratnam

For months now, Galleon Group founder Raj Rajaratnam has been fighting the government’s attempts to admit wiretaps into evidence in its never-ending insider-trading case. Now, Federal prosecutors have struck back, justifying the tapes in a strongly-worded brief to the court.

In early October, John Dowd, a lawyer for Rajaratnam, wrote to U.S. District Judge Richard Holwell, who is overseeing the trial, that “falsehoods and critical omissions pervade this affidavit.” Dowd also maintained that if prosecutors or the Federal Bureau of Investigation had given a more complete description of the Securities and Exchange Commission investigation that preceded the criminal probe, it “would have resulted in the denial of the wiretap application.”

The court filing from Assistant U.S. Attorneys Jonathan Streeter and Avi Weitzman alleged that Rajaratnam’s lawyers had shown no reason to exclude the 2,400+ taped conversations from the criminal trial. “Rajaratnam failed to prove that any Government representative deliberately decided” the federal judge who approved the wiretaps in March 2008, Gerald Lynch, “or had reckless disregard for whether they were deceiving the judge.”

According to Streeter and Weitzman, “Rajaratnam has not and cannot make this showing,” they wrote, noting that Lauren Goldberg, a former prosecutor who worked on the wiretap affidavit testified at a hearing earlier this month that the SEC probe had “hit a bit of a wall” and that the regulator had “developed largely ‘weak or nonexistent’ circumstantial cases involving stocks it was investigating.”

The prosecutors said they used the SEC’s best evidence to win the cooperation of former Galleon employee Roomy Khan, an alleged member of the insider-trading circle that has -ensnared 21 people, including Rajaratnam. Khan appears on many of the wiretaps. Streeter and Weitzman said their case would include testimony from some of the participants in the taped conversations in addition to the taps themselves.

It is unclear when Holwell will rule on the legality of the wiretaps. Rajaratnam’s trial is set to begin in January; he faces decades in prison if convicted.

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Galleon’s Raj Rajaratnam Wins Another Round

October 1st, 2010

Raj Rajaratnam

The Securities and Exchange Commission will not gain access to wiretaps that are at the vortex of the insider-trading case against Galleon Group without first proving that the wiretaps were legally obtained, according to a ruling by an appeals court on Thursday.

The Second Circuit Court of Appeals in New York reversed the February ruling of U.S. District Judge Jed Rakoff that Galleon founder Raj Rajaratnam and co-defendant Danielle Chiesi must submit the wiretaps to the SEC. Rajaratnam and Chiesi garnered the wiretaps from prosecutors in the criminal case.

“While the district court was correct that the SEC had a legitimate right of access to the wiretap materials, it could not properly balance that interest against the privacy interests at stake while the legality of the wiretaps was still unresolved,” the three-judge appeals panel ruled.

A ruling on the legality of the wiretaps is expected following an Oct. 4 hearing before U.S. District Judge Richard Holwell, who is presiding over the criminal case against Rajaratnam and Chiesi. Last month, Holwell said that Rajaratnam “has made a substantial preliminary showing that the government recklessly or knowingly misleading omitted several key facts” from its wiretap applications.

“We are gratified that the Second Circuit appreciated the gravity of the privacy issues at stake, and therefore reversed the disclosure order,” Chiesi’s lawyer, Alan Kaufman, said.

There are more than 18,000 intercepted conversations at the heart of the government’s case against the 21 Galleon defendants, a dozen of whom have pleaded guilty. Rajaratnam and Chiesi have pleaded not guilty and have denied any wrongdoing.

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