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News : International Last Updated: Oct 22, 2009 - 9:32:41 AM


Insider trading case sinks multi-billion dollar hedge fund Galleon
By Finfacts Team
Oct 22, 2009 - 8:06:59 AM

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The high profile insider trading case against the founder of the multi-billion dollar Galleon hedge fund has sunk the group. It announced plans on Wednesday to liquidate.

Founder Raj Rajaratnam, said that Galleon would begin winding down its hedge funds in the wake of investor redemptions.

“I have decided that it is now in the best interest of our investors and employees to conduct an orderly wind down of Galleon’s funds while we explore various alternatives for our business,”Rajaratnam, 52, wrote in a letter to clients.

He added that he expected to return the $2.5 billion he now manages for outside investors by the end of the year. However, he said he hoped to sell Galleon as a single unit so that his employees would not have to find new jobs individually.

The bulk of Galleon’s positions are in liquid, rising equity markets.

The Sri Lankan-born hedge fund manager is among six people, including former Bear Stearns executives and senior executives at Intel an IBM who have been charged with insider trading - - see link to Monday's story in Related below.

Recent research from New York University’s Stern School of Business, suggests that one in five hedge fund managers misrepresent their fund or its performance to investors during formal due diligence investigations.

Using data from 444 due diligence reports commissioned by investors between 2003 and 2008, the academics analysed the extent to which hedge fund managers’ representations about their funds were lies.

Managers most commonly misrepresented the amount of money they had entrusted to their funds, their performance and their regulatory and legal histories, according to the research.

The research says one manager told investigators that his assets under management were $300m  higher than they actually were.

Another fund , according to Professor Stephen Brown, one of the report’s co-authors, was found to have lied about the unblemished legal records of its partners.

There has been concern about activities, such as the payment of researchers for insider company information, usually under the cover of a consultancy contract.

The Galleon Group, the hedge fund co-founded by recently arrested Raj Rajartman, is winding down. Greg Zuckerman, of the Wall Street Journal, discusses what this means for investors and other hedge funds:

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