Raj Rajaratnam tells staff and clients he is innocent of $20m insider dealing charges
The US hedge fund Galleon Group is winding down its operations after suffering a rash of client withdrawals following the arrest of its billionaire founder, Raj Rajaratnam, on $20m (£12m) insider dealing charges.
A specialist in hi-tech investments, Galleon manages $3.7bn of customers’ money and has begun liquidating its holdings. In a letter to staff and clients, Rajaratnam reiterated his insistence that he was innocent of 13 criminal charges laid by US prosecutors and said he was exploring "alternatives" for the business.
"I have decided that it is now in the best interest of our investors and employees to conduct an orderly wind down of Galleon’s funds while we explore various alternatives for our business," wrote Rajaratnam.
He continued: "The privilege of managing investors’ capital is a responsibility that I have always taken very seriously. I want to reiterate that I am innocent of all charges and will defend myself against these accusations with the same intensity and focus I have brought to managing our investors’ capital."
Rajaratnam was arrested on Friday alongside five alleged accomplices in the largest insider dealing case ever brought against a US hedge fund. Using evidence acquired from tapping telephone lines, the department of justice has accused the Sri Lanka-born financier of making more than $20m in profit through illegal tips about market-moving events from inside contacts at companies including IBM and Intel.
At its peak in the early years of the decade, Galleon was one of the world’s 10 largest hedge funds, at one point managing more than $7bn. But Rajaratnam’s arrest has shattered the fund’s credibility and investors have begun asking how Galleon consistently achieved "alpha" – the industry term for a market-beating performance.
Staff at Galleon have spent the past few days preparing their CVs and contacting headhunters in the hope of securing employment elsewhere. The firm employs 130 people and sources close to the company said several possible buyers for the business have come forward. Two of its key brokers – Barclays and Bank of America – have severed ties with the firm.
In common with most other hedge funds, Galleon’s customers are only allowed to withdraw money at pre-set intervals and must give 45 days’ notice if they want to exit. For Galleon’s key technology fund, clients must give notice by mid-November that they want their money back at the beginning of January.
Rajaratnam, who is married with three children, has an estimated personal fortune of $1.3bn and is ranked by Forbes magazine as the 559th richest person in the world. He has an apartment in Manhattan’s affluent Sutton Place neighbourhood and a mansion in the exclusive Connecticut town of Greenwich.
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