One of the biggest insider trading cases of all time came to a conclusion today as Raj Rajaratnam, a hedge fund billionaire, was convicted on 14 counts of white collar crime. Raj Rajaratnam, the founder and former head of Galleon Management, was convicted of fraud and conspiracy; particularly using fraud to achieve millions in profits and to avoid over $60 million in losses.
Rajaratnam faces up to 19 years and six months in prison and will be sentenced on July 29. The fraud and conspiracy case built against the hedge-fund manager by the government used wiretap evidence where Rajaratnam was heard discussing insider trading tips with other traders and corporate insiders. For example, Rajaratnam was recorded saying that he heard from someone on the board of Goldman Sachs that a particular company was, “going to lose $2 per share.”
Mr. Rajaratnam’s defense lawyer argued the defense of the mosaic theory of investing where Rajaratnam’s company had a good reputation of doing excellent research on publicly traded companies whereby a “mosaic” picture of a company’s financial future was created. The hedge fund manager’s defense team also argued that all of the alleged illegal trading was based on public information that could be found in analyst reports, company news releases and newspaper articles.
Prosecutors countered the defense’s argument by acknowledging Galleon completed valid research, but then violated securities laws frequently to gain an illegal advantage in stock-trading.
At its height the Galleon Group hedge fund managed over $7 billion in assets, and Raj Rajaratnam’s net worth was estimated by Forbes to be $1.3 billion.
Source: Dealbook, “Galleon’s Rajaratnam found guilty,” Peter Lattman and Azam Ahmed, 5/11/11