Raj Rajaratnam, a billionaire investor, once ran the Galleon group, which became one of the world's largest hedge funds.
On May 11, 2011, he was found guilty of fraud and conspiracy, becoming the most prominent figure convicted in the government's crackdown on insider trading on Wall Street.
After deliberating for over two weeks, a federal jury in Manhattan convicted Rajaratnam on all 14 counts against him.
Rajaratnam was sentenced in October 2011 to 11 years in prison and fined $10 million. It was the longest-ever prison sentence for insider trading, a watershed moment in the government's aggressive two-year campaign to root out the illegal exchange of confidential information on Wall Street.
The sentence was lower than the range of roughly 19 to 24 years requested by the government.
US District Judge Richard J Holwell announced the sentence after concluding that Rajaratnam made well over $50 million in profits from his illegal trades. The judge also said Rajaratnam needed a kidney transplant and suffered from advanced diabetes, an illness he took into consideration in giving him leniency.
In December, a federal court denied Rajaratnam's request to remain free on bail while appealing his conviction, forcing the fallen hedge fund manager to report to prison.
When Rajaratnam was charged in October 2009, he became the hub of what developed into a sprawling, multi-year investigation. The Justice Department and the Securities and Exchange Commission accused Rajaratnam and five others of relying on a vast network of company insiders and consultants to make tens of millions in profits.
During the course of the case, 21 defendants pleaded guilty, including former executives at IBM, Intel and Bear Stearns.
The case continued after Rajaratnam's conviction, with Rajat Gupta charged with insider trading on October 26. Gupta, a former director of Goldman Sachs and Procter & Gamble, was charged by a federal grand jury with one count of conspiracy to commit securities fraud and five counts of securities fraud.
Gupta is accused of being "the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam," according to Preet Bharara, the United States attorney in Manhattan. Among the illegal tips that Gupta is accused of passing to Rajaratnam is advance news of Warren E Buffett's $5-billion investment in Goldman Sachs in 2008.
Born in Sri Lanka on June 15, 1957, Rajaratnam earned an undergraduate degree in engineering from the University of Sussex in 1980 and a master’s in business administration from the University of Pennsylvania in 1983. Two years later, he joined Needham & Company, a small investment bank that focused on technology and health care companies. He rose through Needham’s ranks before leaving in 1997 to found Galleon, which invested mainly in technology stocks.
The Rajaratnams lived in an apartment on Sutton Place in Manhattan valued at $17.5 million and had homes in Connecticut and Florida. But they also had a frugal streak. They flew commercial airlines and did not collect expensive art or other trophies.
Rajaratnam’s friends painted him as gregarious and generous, a cricket fan and an avid player of fantasy football, a relatively straightforward man whose parents lived with him and his wife, Asha, in Manhattan.
Rajaratnam’s rise to wealth was driven by the technology stock boom of the 1990s. As the Nasdaq stock market soared, many hedge funds turned in extraordinary returns, including Galleon, whose main fund rose 93 percent in 1999. Among other funds, Galleon gained a reputation as a momentum investor that tried to ride rising stocks to their peak.
Even as many other technology funds were decimated by the crash, Galleon gained after the bubble burst, posting positive returns every year until 2008.
But as Galleon’s status grew, Rajaratnam and Galleon attracted attention from tax and law enforcement authorities. In 2001, a former employee of Intel pleaded guilty to a federal fraud charge for sending confidential information about Intel to Galleon three years earlier. The employee, Roomy Khan, left Intel and briefly joined Galleon before being dismissed in 2000.
Khan re-entered Rajaratnam’s life, according to the criminal complaint against him. Facing financial difficulties, she is said to have passed on insider information in the hope of being rehired at Galleon.
Khan also traded on the tips for her own account. By late 2007, the F.B.I. was investigating her, and in November 2007, she began cooperating with authorities investigating Rajaratnam. Investigators then obtained approval to tap Rajaratnam’s cellphone. The complaint cited dozens of recorded conversations, giving a glimpse of his profanity-laced eagerness to swap information with technology executives and investors. Legal problems were not new for Rajaratnam, charged with trading on inside information.
In 2005, he paid $20 million in back taxes, penalties and interest to settle a federal investigation into a sham tax shelter that he used, according to a previously undisclosed lawsuit. His Galleon Group funds were entangled in an earlier fraud case, and found to have violated Securities and Exchange Commission rules.