Billionaire Founder of Hedge Fund Manager Galleon Group, Raj Rajaratnam, Charged in Alleged Insider Trading Conspiracy

On October 16, 2009, the United States Attorney for the Southern District of New York and the Federal Bureau of Investigation announced the filing of criminal charges against several people involved with the Galleon Group family of hedge funds and New Castle Funds, LLC, for allegedly engaging in a massive insider trading scheme.  Specifically, the government accuses Raj Rajaratnam, founder and manager of Galleon, Mark Kurland, a top executive at New Castle, and Danielle Chiesi, a New Castle employee, of contacting a network of close business associates, including Rajiv Goel, a managing director at Intel Capital, Anil Kumar, a director at McKinsey & Company, Robert Moffat, an IBM senior executive, and one another to obtain confidential information about corporate earnings and takeover activity at several public companies.  The complaints also accuse Rajaratnam of using that non-public information to illegally trade on behalf of funds under his management to obtain more than $20 million in profits.  According to federal prosecutors, this criminal action, brought in two separate, but interconnected criminal complaints, is the largest ever against a hedge fund for insider trading, and it represents the first time that the government has used wiretaps to target “significant insider trading on Wall Street.”  In a related action, the Securities and Exchange Commission (SEC) also filed a civil injunctive action in the United States District Court for the Southern District of New York against Rajaratnam, Galleon Management L.P., and the aforementioned executives based on the same allegations.  Nonetheless, this case implicates far more than just the run-of-the-mill SEC civil complaint.  Instead, as the United States Attorney remarked, it “should be a wake up call” for the entire hedge fund community.  We detail the factual allegations and legal claims in the criminal and civil complaints.

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