Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Insider Trading Charges Against Former Galleon Portfolio Manager Rengan Rajaratnam
Defendant Allegedly Traded on Inside Information Relating to Technology Stocks in 2008
|U.S. Attorney’s Office March 21, 2013|
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), today announced conspiracy and securities fraud charges against Rajarengan Rajaratnam (Rengan Rajaratnam), a former portfolio manager at the hedge fund management firm Galleon Group, for his alleged involvement in an insider trading scheme. Rengan Rajaratnam allegedly conspired with his brother, Galleon founder Raj Rajaratnam, to trade on the basis of material, non-public information (“inside information”) concerning Clearwire Corp. (“Clearwire”) and Advanced Micro Devices Inc. (“AMD”) in 2008, earning nearly $1.2 million in profits in the aggregate. v Rajaratnam has not yet been arrested on these charges.
Manhattan U.S. Attorney Preet Bharara said, “As alleged, Rengan Rajaratnam and his brother shared more than DNA; they also shared a penchant for insider trading. Along with his brother Raj, Rengan Rajaratnam was allegedly at the heart of an insider trading scheme that swept up an unprecedented number of people in its web of corruption, and with his indictment, we are one step closer to closing that chapter.”
FBI Assistant Director in Charge George Venizelos said, “Rengan Rajaratnam’s career arc paralleled his brother’s. He followed in Raj’s footsteps by obtaining an MBA from a top- flight business school. He went to work for Raj at Galleon. As alleged in the indictment, Rengan also engaged in the same illegal conduct as Raj. He reaped the benefit of insider information obtained by Raj, and he planned to reciprocate by cultivating his own source of inside information. Now Rengan’s career arc has descended to the same place his brother’s did less than four years ago: defendant.”
In a separate action, the U.S. Securities and Exchange Commission (SEC) announced civil charges against Rengan Rajaratnam.
The following allegations are based on the indictment filed yesterday and unsealed today in Manhattan federal court and other court documents:
The inside information concerning Clearwire originated from Rajiv Goel, an employee of Intel Corp. (“Intel”). In March 2008, Goel provided inside information to his friend Raj Rajaratnam concerning a significant transaction in which Intel would invest approximately $1 billion in Clearwire in exchange for a 10 percent equity position. Raj Rajaratnam, in turn, shared the inside information with his brother, Rengan Rajaratnam. Rengan Rajaratnam and Raj Rajaratnam used this inside information to buy Clearwire stock on March 24 and 25, 2008.
After the U.S. stock markets closed on March 25, 2008, a major news organization published an article describing, in part, the proposed Clearwire transaction. Shortly afterward, Rajaratnam called his brother to alert him to the news report. In that call, Rajaratnam said, “We’re f—d, man,” because the “Clearwire stuff...just hit” the newspaper. Rengan Rajaratnam explained that the news article was “short on details...they don’t have any of the equity split. But they named...Comcast, they named Time Warner, Clearwire, Sprint.” Raj Rajaratnam replied, “O.K., s—t.” Rajaratnam then said, “So, I don’t know how much you got in today,” referring to Raj Rajaratnam’s purchases of Clearwire stock that day, “but I think [Clearwire’s share price] is gonna rip [rise sharply] tomorrow.” In fact, Clearwire’s share price did rise sharply the following day in response to the news article, after which Rengan Rajaratnam and Raj Rajaratnam made nearly $1.2 million in profits from the inside information concerning Clearwire.
The inside information concerning AMD originated from Anil Kumar, who was, at the time, a partner of McKinsey & Co. (“McKinsey”), the global management consulting firm. In 2008, AMD hired McKinsey to advise it in relation to a strategic transaction in which AMD would spin off its manufacturing business into a new entity and the investment authority of Abu Dhabi would invest in the new entity and in AMD itself. On August 15, 2008, Kumar advised Raj Rajaratnam that AMD and the Abu Dhabi investment authority had “shaken hands and said that they’re going ahead with the deal.” Three hours later, Raj Rajaratnam told Rengan Rajaratnam, “I just heard that...AMD had a handshake with the...Arabs....The Arabs to put [in] six billion dollars.” He also told his brother that he had bought AMD shares based on Kumar’s inside information about AMD, and that he was “buying two fifty”—meaning 250,000 shares of AMD—“for you, OK?” Rengan Rajaratnam replied, “Alright, thanks a lot man, I appreciate it.” On August 15, 2008, Raj Rajaratnam bought three million shares of AMD for a Galleon hedge fund that he managed and 250,000 shares of AMD for a Galleon hedge fund that Rajaratnam managed.
Later that day, Rengan Rajaratnam and Raj Rajaratnam spoke again about the AMD inside information and also about the affirmative efforts that Rajaratnam was making to cultivate another McKinsey partner (“McKinsey Partner A”) as a source of inside information. Specifically, Rengan Rajaratnam advised Raj Rajaratnam that he had just finished a meeting with McKinsey Partner A in which McKinsey Partner A “spilled his beans” and “volunteered the information about the investments” in AMD. Raj Rajaratnam said, “[W]hat we wanna do is...get him and then have access to, you know, be able to chat with him” about
other inside information. Raj Rajaratnam said to Rengan Rajaratnam, “[H]e is a little dirty, right?” Rajaratnam responded, “[H]e’s a little dirty.” Rajaratnam said that when he had asked McKinsey Partner A what other stocks McKinsey Partner A liked, McKinsey Partner A said, “‘You know, the problem is all my best ideas...are inside information.’”
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Rajaratnam, 42, of New York, New York, has been charged with one count of conspiracy to commit securities fraud and six counts of securities fraud. Count one, the conspiracy charge, carries a maximum potential penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. Counts two through seven, the securities fraud charges, each carry a maximum potential penalty of 20 years in prison and a maximum fine of $5 million.
Raj Rajaratnam was found guilty of conspiracy and securities fraud charges in 2011 and is currently serving an 11-year prison sentence. Rajiv Goel and Anil Kumar both pled guilty pursuant to cooperation agreements and were sentenced to two years of probation in 2012.
Mr. Bharara praised the investigative work of the FBI. He also thanked the SEC. Mr. Bharara noted that the investigation is continuing.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney David B. Massey is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.