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FBI charge 14 over alleged Galleon insider trading

[guardian.co.uk, Thursday, 5 November 2009 22:38 No Comment]

Raj Rajaratnam, billionaire founder of hedge fund Galleon Group, is led in handcuffs by the FBI Photograph: Louis Lanzano AP Criminal charges have been filed in the US against 14 individuals linked to the alleged insider dealing scheme involving billionaire hedge fund manager Raj Rajaratnam, the Sri Lanka-born philanthropist who has been let out on $100m (£60m) bail.

Rajaratnam is facing 13 charges of fraud and conspiracy and is accused of making more than $20m through unlawful trades on inside information. He was arrested last month along with five others and is due appear for a bail hearing later today.

Federal prosecutors have now widened their investigation into the case, which the Securities and Exchange Commission (SEC), the US regulator, has said made $25m of profits for its participants. It was not immediately clear whether the 14 included Rajaratnam and the five others arrested previously.

The FBI made eight arrests yesterday in what is the biggest insider dealing case involving a hedge fund.

Wire tap evidence is expected to be crucial in attempts by prosecutors to convict Rajaratnam, a 52-year-old father of three, who is determined to prove he is innocent.

The latest court documents show that Craig Drimal, Zvi Goffer, Arthur Cutillo, Jason Goldfarb, Emanuel Goffer, David Plate and Michael Kimelman were among those arrested in the latest swoop.

The papers filed in the US district court in Manhattan allege that Goffer, who also worked at Galleon, operated an insider trading network in 2007 along with a lawyer who was working at a firm involved in mergers and acquisitions. Goffer gave prepaid mobile phones to individuals he was paying for secrets about mergers and acquisitions, according to the complaint filed by FBI agent David Makol.

The prepaid mobile phones were intended to make it more difficult for the calls to be traced. Cutillo, a lawyer, is one of those who is alleged to have passed on the tips. Goffer’s mobile phone is one that had been tapped by the authorities in 2007 and 2008.

People who have already been charged worked at companies such as Intel, McKinsey and IBM and are said to have passed on information about more than 10 companies including Google and Hilton.

Rajaratnam set up Galleon in 1996 after a career as an analyst at a US stockbroker. His fund produced annual returns of 22% and had $6bn under management until investors scrambled to withdraw their cash.

The Feds moved as Rajaratnam prepared to catch a flight to London and then on to Switzerland. Among those arrested at the same time were Rajiv Goel, 51, a director in strategic investments for the computer chip maker Intel, and Robert Moffat, 53, a senior vice president at the hardware manufacturer IBM.

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