NEW YORK—Raj Rajaratnam, a billionaire hedge-fund impresario who built his fortune in the relentless cultivation of corporate contacts, was convicted Wednesday on all 14 counts of securities fraud and conspiracy against him in the biggest insider-trading case ever, likely accelerating an unprecedented wave of prosecutions rocking Wall Street.
The verdict by the 12-member jury, following 12 days of deliberation, capped a blockbuster trial that began in early March and featured 45 wiretaps showing how the founder of Galleon Group trafficked in insider tips provided by a web of contacts at the top tier of American business. DealBook compiled a very impressive list of The Galleon Trial Transcripts of Wiretaps.
It was the first insider-trading prosecution to use methods that had been mainly reserved for organized-crime, drug and terrorism cases.
Some jurors said the wiretaps of Mr. Rajaratnam were the deciding factor. Carmen Gomez, a 55-year-old educator speaking outside her home in the Bronx, said that "it was a very difficult decision," but the recordings showed Mr. Rajaratnam used "confidential information" and bought "stocks based on that."
Mr. Rajaratnam, 53 years old, grew up in Sri Lanka, the son of a sewing-machine company manager. He liked to tell people that his first name meant "king" in Hindi, and, coupled with his last name, that made him "king of kings." Educated in England and the U.S., he began his Wall Street career as a semiconductor analyst before launching Galleon in 1996. He built it into a $7 billion fund at its peak, ferreting out bits of information from technology executives and others, while pushing his analysts and traders to do the same.
He also developed a reputation for pranks. One April Fool's Day, employees arrived at Galleon's morning meeting to find a dwarf whom Mr. Rajaratnam introduced as an analyst hired to cover "small-cap" stocks.
The widely followed trial exposed the behind-the-scenes dealings of a once-prestigious hedge fund that gained access to highly sensitive information about, among other companies, Goldman Sachs Group Inc. at the height of the financial crisis.
The government placed at $63.8 million the amount in illegal profits and avoided losses that Galleon realized through the scheme. Mr. Rajaratnam's lawyer plans an appeal.
The verdict marks one of the highest-profile convictions of a corporate figure since those in the last decade of Bernard Ebbers and Jeffrey Skilling, former top executives at WorldCom and Enron, respectively.
The conviction also represents a signature moment in a government push to bring insider-trading cases that is expected to rev up now that the strategy of using wiretaps against traders has proved a resounding success for prosecutors.
Less than five hours after the verdict, a defendant pleaded guilty in another sprawling insider-trading investigation, the "expert-network" probe, in which the U.S. is pursuing allegations of hedge-fund traders receiving illicit tips about companies from consultants.
Manosha Karunatilaka, a former account manager at Taiwan Semiconductor Manufacturing Co., pleaded guilty to conspiracy to commit securities and wire fraud.
Federal prosecutors in Manhattan had alleged that he shared nonpublic information about his company with clients of expert-network firm Primary Global Research LLC, Mountain View, Calif.
Never before have there been so many major, unrelated insider-trading cases brought by authorities. In the past 18 months alone, the U.S. has criminally charged 47 hedge-fund managers and others with insider trading; 36 now have been convicted or pleaded guilty.
Mr. Rajaratnam showed no emotion as the verdict was read. U.S. District Judge Richard Holwell put Mr. Rajaratnam on home detention with electronic monitoring pending sentencing, which is scheduled for noon on July 29.
The counts Mr. Rajaratnam was convicted of carry a total of up to 205 years in prison time, but under federal sentencing guidelines, he is likely to receive 15 ½ to 19 ½ years, according to prosecutors.
Each of the nine counts of securities fraud on which he was convicted carries a possible sentence of 20 years in prison, and each of the five counts of conspiracy to commit fraud carries a possible five-year sentence.
The judge rejected the prosecutors' request to have Mr. Rajaratnam imprisoned immediately. Mr. Rajaratnam has posted a $100 million bond secured by $20 million in cash or property.
Assistant U.S. Attorney Jonathan Streeter had argued that the defendant might flee because he faces a long sentence, has tens of millions of dollars invested overseas and has strong ties to his home country of Sri Lanka.
In a statement, Manhattan U.S. Attorney Preet Bharara said: "Unlawful insider trading should be offensive to everyone who believes in, and relies on, the market. It cheats the ordinary investor.… We will continue to pursue and prosecute those who believe they are both above the law and too smart to get caught."
Outside court, lead defense attorney John Dowd spoke of his next step in the legal process, an appeal of the verdict. "The case started out with 37 stocks and is down to 14," he said. "The score is 23-to-14 in favor of the defense. We'll see you in the Second Circuit."
Mr. Dowd said Mr. Rajaratnam would appeal the judge's decision to let government wiretaps be played at the trial, calling it "a very substantial issue" on which he would seek to overturn the verdict.
Mr. Dowd later cursed at a CNBC reporter and made a rude gesture that was caught on tape and aired extensively through the day.
The government gave the defense notice of evidence relating to 37 stocks, but it decided to go forward with charges on a smaller subset, said a spokeswoman for the Manhattan U.S. attorney's office.
The jury of eight women and four men informed the judge it had reached a verdict around 10:15 a.m. "I, Robert Jirmnson, Foreman notify the court that the Jury has come to a unanimous decision (Verdict)," they said in a note to the judge, which added: "Please, we do not want to meet with press."
Less than 40 minutes later, the jurors came into the packed courtroom in Manhattan's Foley Square, the scene of numerous high-profile cases over many decades, carrying an envelope with the verdict.
Mr. Rajaratnam sat stiffly in a dark suit. It was the first time in the two months of the trial that he had been seated at the table with his lawyers rather than in a chair in the back of the courtroom well.
Once the jury foreman confirmed they had reached a verdict, the judge's deputy read the results.
As the deputy, William Donald, announced 14 times that the defendant was guilty, Mr. Rajaratnam looked straight at him without flinching.
When the Mr. Donald polled the jury to see if it was indeed their verdict, the last juror, 55-year-old Relesta James of Manhattan, loudly answered: "Yes."
Judge Holwell instructed jurors not to discuss the verdict and released them, and then court security officers escorted them away. Juror Leila Gorman Gonzalez, swiping a subway card to get on a train a block from the courthouse, said of the verdict: "There was just a lot of evidence."
A turning point in the trial came when prosecutors played a tape showing that Mr. Rajaratnam received information about an expected quarterly loss at Goldman Sachs—its first as a public company—from a Goldman board member, Rajat Gupta.
In the call, Mr. Rajaratnam told a contact: "I heard yesterday from somebody who's on the board of Goldman Sachs that they are going to lose $2 per share. The Street has them making $2.50."
The trial featured appearances from such high-powered financiers as Goldman Chief Executive Lloyd Blankfein, who testified for the government about the highly confidential nature of the information relayed to Mr. Rajaratnam.
Mr. Blankfein told jurors Mr. Gupta had violated his duties as a board member by sharing confidential information about Goldman with Mr. Rajaratnam.
Mr. Gupta hasn't been charged criminally; he now is fighting civil allegations by federal regulators that he passed along inside information to Mr. Rajaratnam. He has denied any wrongdoing through his lawyer.
Defense lawyers had argued that Mr. Rajaratnam made money using legitimate research. Mr. Dowd, Mr. Rajaratnam's chief attorney, attempted to mar the credibility of the government's witnesses who testified in support of its case.
Phillip Wedo, a 35-year-old unemployed alternate juror who heard the evidence but didn't participate in deliberations, said he wanted Mr. Rajaratnam to testify and "explain what we heard on the tapes."
Mr. Rajaratnam had told people close to him he wanted to take the stand in his own defense. The defense hasn't explained why he didn't.
The government had been pursuing Mr. Rajaratnam for possible insider trading since 2007, but it wasn't until prosecutors gained court permission to wiretap his phones in 2008 that the case against him started to come together.
Testimony by former McKinsey & Co. consultant Anil Kumar—who earlier had pleaded guilty in the case—was critical.
Mr. Kumar's four days on the stand provided the cornerstone of the government's case, including testimony from the consultant that he was paid $500,000 a year by Mr. Rajaratnam through an offshore account to an account in his housekeeper's name in exchange for insider tips.
Prosecutors also presented allegations of a cover-up of trading activities during the trial.
In a recording of a phone call intercepted by the government that was played during the trial, Mr. Rajaratnam told two employees to create an email trail that would create an impression a stock purchase wasn't based on an insider tip.
"We just have a email trail, right, that, uh … I brought it up," he told the employees after filling them in on a tip provided by Mr. Kumar.
Later, Mr. Rajaratnam told hedge-fund trader Danielle Chiesi—who has pleaded guilty to insider-trading charges—to cover her tracks by darting in and out of a stock to avoid an appearance of trading on an inside tip.
"What I would do is, I would buy a million shares and sell 500,000," Mr. Rajaratnam advised her. "If you want to buy 500, I would buy a million and sell on Friday 500,000, you know?" he said in one call.
COMMENTARY: I like nice endings don't you? I profiled Raj Rjaratnam in a blog update dated March 23, 2011 and thought he would be found guilty, but I never imagined that he would be found guilty on all 14 counts brought against him. Now that's what I call fucking guilty. The jurors claim there was a "lot of evidence". Yeah, I bet there must've been a lot of tape on this scumbag and his conspirators.
How does a guy from Sri Lanka, a very poor nation if there ever was, rise to the top of the finance world, then out of pure greed squander everything? This is his bio thanks to the kind folks at Wikipedia:
Rajaratnam was born in Colombo, Sri Lanka. According to the newspaper The Island he attended S. Thomas College, Mount Lavinia, though other sources say he attended S. Thomas' Preparatory School, Kollupitiya. He moved to England to study engineering at the University of Sussex. He earned an M.B.A. from the prestigious Wharton School of Business of the University of Pennsylvannia in 1983. He is married with three children and maintains residences in Connecticut, New York, and Florida.
According to Forbes magazine, Rajaratnam is a Tamil self-made billionaire hedge fund manager. He was the 236th richest American in 2009, with an estimated net worth of $1.8 billion. He was the 262nd richest American in 2008, with an estimated net worth of $1.5 billion. As of 2009 he was the richest Sri Lankan-born individual in the world.
Rajaratnam started his career as a lending officer at the Chase Manhattan Bank where he made loans to high-tech companies. He joined the investment banking boutique Needham & Co. as an analyst in 1985, where his focus was on the electronics industry. He became the head of research in 1987 and the president in 1991, at the age of 34. At the company’s behest, he started a hedge fund — the Needham Emerging Growth Partnership — in March 1992, which he later bought and renamed 'Galleon'.
His hedge fund was valued at $3.7 billion in 2009, down from a peak of $7 billion in 2008. According to a 2009 investor letter his $1.2 billion Diversified Fund has a net annualized return of 22.3%. Rajaratnam has been featured among the elite US money managers in a book called The New Investment Superstars. Initially invested in technology stocks and healthcare companies, he says his best ideas come from frequent visits with companies and conversations with executives who invest in his fund.
After his arrest, Galleon received requests from investors for the withdrawal of $1.3 billion, causing the fund to close down. In a letter dated October 21, 2009 Mr. Rajaratnam informed his employees and investors that he intended to wind down all the hedge funds of the Galleon Group. Investors received their entire money back in January 2010, plus profits.
In November 2009, Rajaratnam pledged to donate $1 million to help with the rehabilitation of the LTTE combatants. He has donated generously to clear land mines in the war-affected areas in Sri Lanka. He recalled his visits to the mine-impacted areas of Sri Lanka and underscored the humanitarian toll that mines have taken. Recalling his encounter with a young child in Kilinochchi who had lost both legs to a landmine, Rajaratnam stated that this particular image that is etched in his memory “made it an easy decision to write the check.” He helped Sri Lankans recover after the 2004 Tsunami. Mr. Rajaratnam was also a contributor to various causes that promoted development in the Indian subcontinent and programs that benefited lower-income South Asian youth in the New York area.
According to the Federal Election Commission, Rajaratnam has made over $118,000 in political contributions in the past five years. He has also contributed to the Democratic National Committee and various campaigns on behalf of Barack Obama, Hilalry Rodham Clinton, Charles Schmuer, and Robert Menndez.
Unlike Bernie Maddof, who ran a very successful ponzi scheme, and lost or swindled his investor's out of an estimated $65 billion, Raj Rajaratnam's investors got all their money back. Bernie got 150 years in prison, and is serving his sentence at the Federal Correctional Complex in Butner, N.C. Hopefully, justice will be served and the King of King's will get a similar sentence.
Many of these big name white collar criminals attended some of the top universities like Harvard School of Business, Wharton School of Business, Sloan School of Business, Stanford and other prestigious universities. You have to be pretty smart, at the top of your game, to get into these schools, so you would think they would be show better judgement and set an example. Somehow I see a pattern developing here, don't you?
I am glad that the Justice Department is finally getting tough on white collar crimals and using wiretaps and surveillance to get the goods on these white collar criminals. This is just chapter one, and there are literally dozens of accomplices who have been convicted or coming forward as witnesses.
In some states you can go to state prison for 10 years just for selling a few ounces of marijuana, but white collar crime criminals get 5 to 7 years, they serve half, and are released for good conduct. Many of them end up in country club, medium security prisons where they serve time with other white collar criminals. That's not hard time.
Courtesy of an article dated May 12, 2011 appearing in The Wall Street Journal