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Billionaire trader convicted of 14 counts of insider trading

Raj Rajaratnam made millions by pursuing inside information on deals – but was caught up by US government wiretapping.

Raj Rajaratnam leaves court in Manhattan after being found guilty of 14 counts.
Raj Rajaratnam leaves court in Manhattan after being found guilty of 14 counts.
Image: Louis Lanzano/AP

A FORMER HEDGE fund titan has been convicted in an insider-trading case, thanks largely to weapons prosecutors have using against mobsters and drug lords for years: wiretaps.

What that means for his former peers depends on whether it’s true, as his lead attorney asserts, that what he did “happens every day on Wall Street.”

Federal prosecutors used nearly three dozen recordings at trial to back up their claim that Raj Rajaratnam, worth $1.3bn in Forbes’ most recent estimates, made his fortune by coaxing a crew of corporate tipsters into giving him an illegal edge on blockbuster trades in technology and other stocks.

In a clear signal of the tapes’ importance, the US District Court jurors asked several times to rehear some of the recordings before convicting Rajaratnam of all 14 counts: five of conspiracy and nine of securities fraud.

Rajaratnam could be heard wheeling and dealing with corrupt executives and consultants — in one case demanding “radio silence” on information that could affect a stock price.

The tapes spelled the demise of a defendant who “was among the best and the brightest, one of the most educated, successful and privileged professionals in the country,” US attorney Preet Bharara said in a statement. ”Yet, like so many others, he let greed and corruption cause his undoing.”

Authorities have said the recordings represent the most extensive use to date of wiretaps in a white-collar case. The defense had fought hard in pretrial hearings to keep the evidence out of the trial by arguing that the FBI obtained it with a faulty warrant.

Once a judge allowed the recordings in, prosecutors put them to maximum use by repeatedly playing them for jurors, who convicted Rajaratnam on their 12th day of deliberations.

Bharara’s office “took wiretaps for a test drive, and I’d say it was a resounding success,” said Stephen Miller, a former federal prosecutor now in private practice in Philadelphia.

The tapes were “a gold mine,” said Steven Scholes, an attorney in private practice in Chicago who formerly worked in the Securities and Exchange Commission Division of Enforcement. “There’s an old saying that you can’t cross-examine a tape,” he said.

Prosecutors had alleged that illegal tips allowed the 53-year-old Rajaratnam to make profits and avoid losses totaling more than $60 million. His Galleon Group funds, they said, became a multibillion-dollar success at the expense of ordinary stock investors who didn’t have the advance notice he enjoyed of mergers, acquisitions and earnings reports.

On Wednesday, Rajaratnam sat at the defense table, a rarity for him at the trial, and stayed motionless as the verdict was read.

After the jurors were dismissed with a warning from Judge Richard Holwell not to talk about deliberations, assistant attorney Jonathan Streeter asked Holwell to jail Rajaratnam.

The defendant’s overseas bank accounts and properties give him the means to flee, and the prospect of a lengthy prison term gives him a “tremendous incentive” to do so, Streeter said.

But the judge ruled that Rajaratnam could remain free on $100 bail as long as he was placed under house arrest at his Manhattan home to await sentencing on July 29. Prosecutors said he faces a possible prison term of roughly 16 to 19 years under federal sentencing guidelines. Financial penalties including fines and restitution have yet to be determined.

Outside court, with Rajaratnam at his side, defense attorney John Dowd said there will be an appeal filed with the 2nd US Circuit Court of Appeals. Of the 37 trades that the government sought to prosecute, he added, only 14 made it to trial.

“The score is 23-14 in favour of the defence,” he said. “We’ll see you in the 2nd Circuit.”


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