Insider Trading Case Snares Six

Federal prosecutors on Friday unveiled a broad criminal case against billionaire hedge fund manager Raj Rajaratnam and five others accused of netting more than $20 million in profits by trading based on inside information about the stocks of Google and other companies.

Prosecutors described the case as a new, aggressive phase in the government's pursuit of financial crime. It is the largest insider trading case ever involving a hedge fund, and the investigation for the first time used wiretaps to obtain evidence of insider trading.

"As the defendants in this case have now learned the hard way, they may have been privy to a lot of confidential corporate information, but there was one secret they did not know -- we were listening," said Preet Bharara, U.S. attorney for the Southern District of New York. "Privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?"

With net worth of $1.3 billion, Rajaratnam is on the Forbes list of the richest people of the world -- and he's apparently the wealthiest Sri Lankan. He runs Galleon Partners, based in Manhattan. Prosecutors charged him with 13 violations of securities law, which could put him in jail for life.

"He is not a master of the universe; he's a master of the Rolodex," said Robert Khuzami, enforcement director at the Securities and Exchange Commission, which took part in the probe and filed a civil complaint against the defendants.

Others facing charges include Danielle Chiesi and Mark Kurland, employees of New Castle Funds (formerly affiliated with Bear Stearns); Rajiv Goel, an employee at Intel Capital; Anil Kumar, an employee at McKinsey; and Robert Moffatt, an executive at IBM.

All were arrested Friday by the FBI. Rajaratnam's bail was set at $100 million.

Rajaratnam's lawyer declined to comment. Lawyers for the other defendants either did not respond to messages seeking comment or could not be reached.

"We had no knowledge of the investigation before it was made public and we intend to cooperate fully with the relevant authorities," Galleon said in a statement. "Galleon continues to operate and is highly liquid."

The criminal complaint claims that Rajaratnam and the others repeatedly traded on confidential information about the companies given as tips by insiders and other executives at hedge funds, public companies and investor relations firms.

The information allegedly touched on a range of upcoming developments affecting the companies -- including details of investments, mergers, acquisitions and earnings.

The complaint claimed Rajaratnam conspired with Kumar, Goel, Chiesi and an unidentified government witness to trade in companies including Google, Hilton Hotels, Polycom, Clearwire, Akamai, Advanced Micro Devices and People Support.

Sources of information allegedly included insiders at the companies as well as insiders at consulting and advice firms such as Moody's and Market Street Partners.

The complaint said that its cooperating witness learned from a Moody's analyst that Hilton, a public company, was going to be taken private in July 2007. The witness told this information to Rajaratnam, who purchased hundreds of thousands of shares, according to the complaint, making $4 million in profit.

In another example cited by prosecutors, Rajaratnam allegedly received a call on his phone from Chiesi in July of last year. Chiesi told Rajaratnam that he had a source at Akamai who told him the tech company was going to announce bad earnings news. Rajaratnam allegedly sold short Akamai stock and made $2.4 million in profit.

What Chiesi and Rajaratnam apparently didn't know was that the FBI was listening to their phone calls.

Authorities said their investigation is continuing.