SEC: Billionaire’s indictment a warning to other traders

By Agence France-Presse
Saturday, October 17th, 2009 -- 3:19 pm
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sec securitiesandexchangecommission SEC: Billionaires indictment a warning to other tradersA top US watchdog has warned financial firms they face increased scrutiny after a billionaire appeared in court on Friday charged with one of biggest hedge fund insider trading case in US history.

Amid widespread public anger at Wall Street transgressions, the Securities and Exchange Commission said the indictment of hedge fund big-wig Raj Rajaratnam should be seen as a warning.

"It would be wise for investment advisors and corporate executives to closely look at today's case, their own internal operations, and the increasing focus and scrutiny on hedge fund trading by the SEC and others," said Robert Khuzami, director of the SEC's enforcement division.

Khuzami said hedge funds should "consider what lessons can be learned and applied to their own operations" after he announced charges against Rajaratnam and his New York-based hedge fund advisory firm Galleon Management LP.

At a press conference Friday, Khuzami described Rajaratnam's indictment as "the biggest hedge fund insider trading case ever brought."

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The SEC complaint alleges the illegal trading scheme netted some 25 million dollars.

"He is not a master of the universe. Instead, Raj Rajaratnam is a master of the rolodex," Khuzami said.

"Rajaratnam embarked on a deliberate and systematic use of inside information to inform his trading decisions."

Also named in the SEC complaint are Galleon, and a second hedge fund -- New Castle Funds LLC -- along with five individuals.

Rajaratnam's co-accused, who include employees of Intel subsidiary Intel Capital, IBM, and McKinsey & Company, are alleged to have supplied him with the insider information he used to trade on behalf of Galleon.

The information Rajaratnam allegedly received involved a number of well-known companies, including Google, IBM and Hilton.

Much of the case against Rajaratnam and his co-accused is based on wiretaps that allegedly recorded conversations about insider information and the possible consequences of being caught.

One excerpt cited in the criminal complaint against co-defendant Danielle Chiesi, a portfolio manager at New Castle Funds, involves an executive with Akamai, an Internet content delivery company.

"I'm gonna give you a present. But it has to be face-to-face..." the executive says. When Chiesi asks what the "present" is, the executive says: "Information."

"Well that, that is a great present," Chiesi says.

Another part of the complaint involves a phonecall between Chiesi and co-defendant Mark Kurland, a senior managing director and general partner at New Castle, who warns "Don't put anything on email... Don't even email Raj (Rajaratnam), or anybody... Be careful."

Elsewhere, Chiesi appears aware of the potential consequences of the scheme, telling a unnamed individual: "I'm dead if this leaks. I really am..."

Rajaratnam, who was named number 559 on this year's Forbes list of world billionaires, and his co-defendants are charged with various violations of the Securities Exchange Act. They could face up to 20 years in prison if convicted.

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Story comments are below...

  • allfactssupportmypositions
    Compared to Goldman Sachs, Raj is Mother Theresa. What was it Elliott Spitzer called it. Oh yeah, that's right. "Insurance Fraud"..... BTW how do you all like paying income tax so they can give it to AIG to pay out to Goldman, so they can hand out their 18 billion in bonuses to the people that helped cripple our country?

    I think a few million of us should visit our local Goldman Sachs office and let the maggots there know how we feel about their 750K average salaries earned by stealing from a few million Grandma Millies....

    Until we take to the streets, it will be business as usual on Wall Street.

    Anyone spare a dime?
  • bronxchris
    i'm down - what do you propose?
  • hidflect
    While tasked with repairing and backing up volumous Inbox data, I saw thousands of mails from all over the world landing in a Carlyle Group trader's inbox every week. All the senders from every level in every company, all just spilling their guts with whatever infinitesimal piece of inside-track info they had to offer as tribute for the remote chance they might be considered favourably by the company's members and operators. Above a certain management class level, insider trading is a full-throated and universal scrum.
  • barrelhse
    The SEC is a joke, and I'm guessing nobody does time.
  • Tired of Being Suckered
    When the feds build prison walls around Wall Street, the SEC will be taken seriously.

    Until then, this is just another two-bit distraction from the $23 trillion heist of taxpayer funds by Goldman Sachs and the rest of the Wall Street cabal.
  • Is this any sign of increased responsibility at the SEC since the departure of the Bush Crime Family? Or is that too much to hope for?
  • suzisunshine
    warning? it should be the first of many....get busy, Sec.
  • Nail 'em, nail 'em, nail 'em. May the rule of law prevail.
  • greg789
    Rajaratnam is the single largest known US contributor to a charity linked to the Tamil Tiger terror group in Sri Lanka, according to the ABCNews.com

    Why do I think it was Homeland Security and CIA who got the goods on this guy and not SEC or any other financial watchdog? My guess is that unless the insider trader has connections to terror groups, he is home safe.
  • Vox
    No jews are worried. They know they control the legal system in Amerikwan.
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