The practice of Insider Trading came into existence ever since the very concept of trading of securities of a company became prevalent among the investors worldwide and has now become a formidable challenge for investors all over the world. Raj Rajaratnam, Galleon Group co-founder is facing the prospect of more than 15 years in prison if convicted of 14 counts of conspiracy and securities fraud in a criminal trial expected to last more than two months.
Raj Rajaratnam
The Insider trading case of Raj Rajaratnam began way back in 2009. On October 16 2009, Raj Rajaratnam was charged with conspiracy and fraud for running trade based on insider information. The total profits he booked were $20.6 million and it was considered the largest hedge fund case ever in history.
Raj Rajaratnam, hails from Columbo, who is an engineer from the University of Sussex in England. He also holds an MBA degree from the Wharton School of the University of Pennsylvania. 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 as an analyst in 1985, where he focused on the electronic industry. He went on to become the research head in 1987 its president in 1991, at the age of 34. At the company's behest, he started a hedge fund; Needham Emerging Growth Partnership in March 1992, which he later renamed it as 'Galleon'.
Galleon Group, a New York based hedge fund management firm invested its funds in many public sector companies like Google, IBM, AMD, Intel and several other companies. Rajaratnam allegedly had an insider in every company who gave very sensitive information about the company's mergers and acquisitions. Based on the information, Rajaratnam would make his move in investing his company's hedge funds in the respective companies.
Rajaratnam allegedly profited from information they got from Robert Moffat, an IBM senior vice president who allegedly provided data about a possible IBM merger with Sun Microsystems that led to a $1 million windfall for Rajaratnam's New Castle funds. Rajaratnam has also been accused of conspiring with Intel Capital treasury department managing director Rajiv Goel, and Anil Kumar, a director of McKinsey. The alleged offenses took place over three years starting in January 2006. It is also said that h e conspired to get confidential information on the $5 billion purchase by Warren Buffett's Berkshire Hathaway. It was reported that Rajaratnam, Goel and Kumar were all of class of 1983 from Wharton business school.
Rajat Gupta
The civil administrative proceeding filed by the SEC is investigating Gupta's involvement for providing insider information about the $5 billion Berkshire Hathaway investments in Goldman Scahs to Galleon hedge fund.
Raja Gupta who is now 62 years old was born in Kolkata, India. He holds a bachelor of technology degree in Mechanical Engineering from the Indian Institute of Technology, Delhi (IIT) and an MBA from Harvard Business School. Gupta joined McKinsey & Company in 1973 as one of the first Indian-American consultants at the firm. Gupta became the head of the Scandinavian offices in 1981 and head of the Chicago office in 1990. In 1994 he was elected the firm's first managing director (chief executive), and re-elected twice in 1997 and 2000. He was appointed as an independent director at Goldman Sachs on November 10, 2006. After completing three full terms and nearly a decade at the head of the firm he became senior partner emeritus in 2003 and retired from McKinsey in 2007. Gupta is widely regarded as one of the first Indians to successfully break through the glass ceiling.
On March 1, 2011, the SEC filed a civil complaint against Gupta for insider trading. It is alleged that he illegally tipped Rajaratnam with insider information about Goldman Sachs and Procter & Gamble. Gupta had served on the boards of both companies and left both boards as the news of the charges broke.
Rajaratnam, it is alleged, "used the information from Gupta to illegally profit in hedge fund trades.... The information on Goldman made Rajaratnam's funds $17 million richer.... The Procter & Gamble data created illegal profits of more than $570,000 for Galleon funds managed by others, the SEC said." Gupta was said to have "vigorously denied the SEC accusations.
Anil Kumar
Anil Kumar, a former Indian American partner of consulting firm McKinsey & Co has testified to leaking secrets about his clients to billionaire hedge fund tycoon Raj Rajaratnam in exchange for $1.75 million.
Taking the witness stand in the biggest US insider trading trial in years, Kumar, 52, told a New York court Thursday that Sri Lankan-born Galleon hedge fund founder Rajaratnam practically put the money in his account against his will.
It was because Rajaratnam had paid him so much (the agreement was for $250,000 per year) that he felt obligated to tell him secret information about AMD, a micro chip company whose shares Rajaratnam allegedly traded improperly, he said.
' [I violated my confidentiality agreement with McKinsey and AMD because] Raj kept asking and I felt I owed him something given how much he paid me,' a remorseful looking Kumar dressed in a black suit and a black tie testified.
He said a couple of times that he felt like he had to give information to Raj because Raj was paying him.
Specifically, Kumar said, he told Raj material non-public information about 'Octeron,' a chip that AMD was secretly creating (its code name was 'Maid' because it was so top secret) in order to challenge Intel's big business with HP.
Upon learning about the 'Octeron' chip and AMD's plan to sell the chip to HP or Dell and subvert Intel's business with the companies, Raj said, 'That's very useful information,' according to Kumar.
Raj is the only person with whom Kumar shared info, according to his testimony. And he only told him because Raj had put $250,000 into his account somewhat unbeknown to Kumar.
Kumar says he was only made aware of the payments entering his account a few weeks after the transaction happened.
Kumar alleged that according to Rajaratnam's plan payments would be transferred from 'Instanet,' a company which apparently hedge funds and other financial firms frequently use to make 'soft dollar' payments to experts, to 'Pecos Trading,' an offshore company in Switzerland. From there, the money would be transferred in the name of Kumar's housekeeper, Manju Das.
Kumar said Rajaratnam told him: 'You work very, very hard. You are underpaid. People are making fortunes so just keep track of your knowledge and share it with me.'
Earlier the Manhattan court also for the first time heard the voice of Rajaratnam captured on FBI wiretaps. He is heard at times giggling with associates and on other occasions speaking rapidly in a high-pitched voice, rattling off numbers and acronyms for companies.
Along with Kumar, the recordings featured another friend-turned-government-witness, Intel Corp's Rajiv Goel, and former Galleon employee Adam Smith, who will also testify in the two-month trial.
Prosecutors allege that Smith and Rajaratnam conspired to obtain secret information about a potential acquisition of Vishay Intertechnology, a company prosecutors cited in charges against both men.
Kumar's testimony will resume on Monday. He is among 19 people who have pleaded guilty to conspiracy or fraud charges in the broad Galleon probe.
Prosecutors say Rajaratnam made $45 million in illicit profit from 2003 to March 2009 through insider trading. His lawyers contend that he conducted legitimate stock research and did not gain an unfair advantage over other investors.
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