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March 21, 2013 11:33 pm
The younger brother of Raj Rajaratnam, the convicted co-founder of Galleon Group, was charged with conspiracy and securities fraud for his alleged role in a widespread insider trading scheme that toppled the hedge fund.
Rengan Rajaratnam was charged with allegedly trading ahead of corporate transactions involving Clearwire and Advanced Micro Devices in 2008 that generated $1.2m in profits for him and Galleon, according to a criminal indictment made public on Thursday.
The Securities and Exchange Commission also filed civil fraud charges against Mr Rajaratnam alleging he engaged in insider trading since 2006 in three additional stocks based on tips he learnt from his brother and Roomy Khan, a friend and former colleague.
Mr Rajaratnam has not been arrested and is in Brazil, authorities said. He faces a maximum of 20 years in prison if convicted on each of the six securities fraud charges. His lawyer did not respond to requests for comment.
“He reaped the benefit of insider information obtained by Raj, and he planned to reciprocate by cultivating his own source of inside information,” alleged George Venizelos, an assistant director at the FBI in New York. “Now Rengan’s career arc has descended to the same place his brother’s did less than four years ago.”
The criminal and civil charges come as the US Attorney’s office in Manhattan, the FBI and the SEC are wrapping up Galleon-related investigations before the five-year statute of limitations for securities fraud expires.
Mr Rajaratnam, a graduate of the Stanford Graduate School of Business, was an analyst with SAC Capital for about a year before he left in 2004 to co-launch Sedna Capital, where his trading attracted scrutiny by SEC investigators. He closed Sedna in 2008 to join Galleon.
The younger Rajaratnam, 42, surfaced in wiretapped phone conversations during his older brother’s 2011 trial. Raj Rajaratnam is serving an 11-year prison sentence.
While at Galleon, prosecutors alleged, Rengan Rajaratnam bought shares of Clearwire after he received a tip from his brother that Intel’s board had approved a $1bn investment in the company.
On another occasion, prosecutors allege, he bought 250,000 shares of AMD after Raj told him: “AMD had a handshake with the . . . Arabs” who were to invest $6bn in the drive maker.
“All right, thanks a lot man. I appreciate it,” Rengan Rajaratnam said, according to a wiretap transcript.
Rengan Rajaratnam also allegedly sought to cultivate a former business school classmate working for McKinsey as a source of inside information.
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