Galleon hedge fund partner Raj Rajaratnam and five others were charged with crimes including securities fraud and conspiracy involving insider trading that generated more than $20 million in profits, U.S. prosecutors and the FBI said on Friday.
The insider trading at Galleon Technology Funds, New Castle fund and Intel Capital took place in the stocks of Polycom Inc, Hilton Hotels Corp, Google Inc, International Business Machines Corp, Advanced Micro Devices Inc, Sun Microsystems Inc and others, according to two complaints filed in U.S. District Court in New York.
All six accused have been arrested, a spokeswoman for the U.S. Attorney's office in Manhattan said. A statement from the office described the charges and arrests as a takedown of a $20 million hedge fund insider trading case.
One of the criminal complaints accuses Rajaratnam of conspiring with Intel Capital employee Rajiv Goel and Anil Kumar, a director of McKinsey & Co global management consulting firm. The alleged offenses took place for about three years from January 2006.
Galleon had as much as $7 billion under management, the complaint said. Intel Capital is the investment arm of Intel Corp.
A statement by an FBI agent cited in the complaint said: On or about January 9, 2006 an individual who subsequently became a cooperating witness sent the following instant message to Raj Rajaratnam 'donot (sic) buy plcm till i het (sic) guidance; want to make sure guidance OK.
On or about January 12 Rajaratnam purchased 60,000 shares of Polycom for Galleon Technology Funds, a complaint said. It said in July 2007 he bought 400,000 shares of Hilton Hotels Corp for Galleon and about 1,000 put options in Google and arranged to short about 25,000 shares of Google stock.
Rajaratnam and Goel conspired from at least March 2008 to October 2008, the complaint said. Rajaratnam purchased 125,800 shares of Clearwire Corp on March 24, 2008.
A co-conspirator made a phone call to Rajaratnam on July 24, 2008 and the next day Rajaratnam sold short about 138,550 shares of Akamai Technologies Inc stock, a complaint alleged. Also as part of the purported scheme, Rajaratnam and Kumar conspired to buy 2.1 million shares of Advanced Micro Devices.
The cooperating witness obtained inside information regarding Polycom, Hilton and Google from various sources who disclosed the inside information in violation of duties of trust and confidence, the FBI agent's statement in the complaint said.
The cooperating witness communicated this inside information to Rajaratnam, who caused the Galleon Technology Funds to execute securities transactions, earning a total profit of more than $12.7 million from the scheme.
In exchange Rajaratnam provided the cooperating witness with inside information regarding other technology companies.
Typically, securities fraud charges carry possible maximum prison sentences of up to 20 years.
A second complaint accused three other people -- Danielle Chiesi, Mark Kurland and Robert Moffat -- of securities fraud and conspiracy to commit insider trading, earning millions of dollars in profits.
Chiesi worked for New Castle, which was the equity hedge fund group of Bear Stearns Asset Management. Bear Stearns Cos folded in 2008. Kurland was a senior managing director of BSAM and Moffat was employed by IBM.
It was not immediately known who were the lawyers for the accused.
Representatives for the hedge funds were not immediately available. An Intel Corp spokesman declined to comment.
U.S. Attorney for Manhattan Preet Bharara; Joseph Demarest, assistant director-in-charge of the FBI in New York; and Robert Khuzami, director of enforcement, U.S. Securities and Exchange Commission, were expected to give more details later on Friday at a news conference.
(Reporting by Grant McCool and Joe Giannone, editing by Gerald E. McCormick, Phil Berlowitz)