Raj Rajaratnam Begins 11-Year Prison Sentence

Galleon
Galleon hedge fund founder Raj Rajaratnam departs Manhattan Federal Court in New York.

Raj Rajaratnam, 54, the founder of the Galleon Group and a hedge fund multimillionaire, began his 11-year prison sentence at a former military base, near the town of Ayer, Massachusetts.

Rajaratnam, who was found guilty of insider trading, reported to the prison, located 40 miles northwest of Boston, at 12.43 p.m. on Monday, according to details given by Robert Lanza, a spokesman for the Federal Medical Center Devens. No further details were revealed. The 11-year sentence, imposed by U.S. District Judge Richard Holwell, is the longest on record for insider trading.

The Massachusetts prison specializes in housing prisoners with long-term medical needs.

Rajaratnam is diabetic and will likely need a kidney transplant soon, according to court records presented at his sentencing in a Manhattan federal court in October.

The central figure in a broad government crackdown, Rajaratnam was convicted in May of running a network of friends and associates who, for years, leaked corporate secrets.

Meanwhile, Rajaratnam lost a last-ditch bid on Thursday to be allowed to remain under house arrest in his luxury Manhattan apartment, while he appeals the U.S. government's use of phone taps to gather evidence against him.

His lawyers argued the government violated constitutional rights to privacy and that the statute was not designed for insider trading investigations. The appeals process could take more than a year.

Wiretaps are traditionally used in investigations involving organized crime or drug dealing, not Wall Street cases.

The financier, whose firm once managed $7 billion, will lead a starkly different life at Devens, which covers about 600,000 square feet and was renovated to add a dozen buildings in the mid-1990s at a cost of $78 million. The Federal Bureau of Prisons' inmate handbook for Devens shows a photograph of a complex bounded by lush green grass and secluded by trees in bright fall colors. The prison has more than 1,000 inmates, while the town of Ayer has a population of about 7,400, according to the 2010 U.S. census.

The Sri Lankan-born Rajaratnam and his lawyers had asked the Bureau of Prisons to assign him to Butner in North Carolina, which also has a medical center. The Butner facility is where Bernard Madoff, the former non-executive chairman of NASDAQ, is serving what is effectively a life term.

Rajaratnam has paid $63.8 million in criminal penalties and a judge ordered him to pay an additional $92.8 million in a civil case brought by the U.S. Securities and Exchange Commission.

Rajat Gupta, a former Goldman Sachs Group Inc. (GS.N) Director and a former chief of consulting firm McKinsey & Co. has been charged with leaking tips to Rajaratnam. Gupta denies the charges.

The cases are USA v Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184, SEC v Galleon Management et al No. 09-08811 in the same court and 2nd U.S. Circuit Court of Appeals, No. 11-4416. 

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