Galleon Portfolio Manager Sentenced in Manhattan Federal Court for Insider Trading
| U.S. Attorney’s Office October 25, 2012 |
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL CARDILLO, a former portfolio manager at Galleon Group (“Galleon”), was sentenced today to three years of probation in connection with an insider trading scheme in which CARDILLO traded based on material, nonpublic information (“Inside Information”) stolen from public companies. CARDILLO pled guilty in January 2011 to one count of conspiracy to commit securities fraud and one count of securities fraud. He was sentenced today in Manhattan federal court by U.S. District Judge Jed S. Rakoff.
According to the information, statements made during CARDILLO’s guilty plea proceeding, and CARDILLO’s testimony during the criminal trials of Rajat Gupta (the former Chairman of McKinsey and former member of the Board of Directors of Goldman Sachs and Procter & Gamble (“P&G”)) and Zvi Goffer (a former portfolio manager at Galleon):
In 2007, CARDILLO traded based on Inside Information relating to the acquisitions of 3Com Corporation and Axcan Pharma, Inc. CARDILLO was tipped by a co-conspirator at Galleon, Craig Drimal, who had obtained the Inside Information from Goffer, who, in turn, had obtained the Inside Information from two attorneys at Ropes & Gray, Arthur Cutillo and Brien Santarlas. In return for the Inside Information, Goffer made cash payments to Cutillo and Santarlas. Prior to trading in these deals, CARDILLO had traded based on Inside Information relating to the acquisitions of Kronos, Inc., and Hilton Hotels Corp. Although CARDILLO did not know the identity of the ultimate sources of the Inside Information relating to Kronos and Hilton, he knew that the trades were based on Inside Information coming from someone who was violating a duty of confidentiality.
In 2008 and early 2009, CARDILLO traded based on Inside Information relating to J.M. Smucker Company and P&G. He was tipped by a co-conspirator at Galleon, RK Rajaratnam, who had obtained the Inside Information from Raj Rajaratnam, the head of Galleon, who, in turn, had obtained the Inside Information from Gupta. In June 2008, Gupta tipped Raj Rajaratnam that P&G was selling its coffee business to J.M. Smucker. In January 2009, Gupta tipped Raj Rajaratnam that P&G was going to announce a reduction in its forecasted organic sales growth, a key metric for assessing the company’s operational performance. Although CARDILLO did not know the identity of Raj Rajaratnam’s source of Inside Information on P&G’s Board, CARDILLO understood that the Inside Information was coming from a P&G Board member who was breaching his fiduciary duties to the company and its shareholders.
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In addition to his probation, CARDILLO was ordered to forfeit $291,189.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission.
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.
The case is being handled by the office’s Securities and Commodities Task Force. Assistant U.S. Attorneys Reed Brodsky, Andrew Fish, and Richard Tarlowe are in charge of the prosecution.