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Hedge fund billionaire Raj Rajaratnam on Thursday
was sentenced to 11 years in prison, the longest-ever term imposed in an US
During the sentencing proceeding, Judge
Richard Holwell said that insider trading "is an assault on our free
markets," and added that "the crimes and scope of
the crimes [committed by Rajaratnam] reflect a virus in our business culture
that needs to be eradicated."
The Galleon Group founder
Raj Rajaratnam, a billionaire of Sri Lankan origin and among 14 others who have
been jailed in the case, two senior executives of
Intel and McKinsey - - the management consulting firm - - who were friendly with
Rajaratnam and are of Indian origin, earlier pleaded guilty to supplying him
with insider tips. The Indian-born Rajat Gupta, a former director of Goldman
Sachs who had been a partner in a business with Rajaratnam and headed
McKinsey, from 1994 to 2003, is under
investigation for passing insider information on Warren Buffett's 2008
investment in the US investment bank, to Rajaratnam.
Gupta's former colleague at
McKinsey, Anil Kumar, pleaded guilty in January 2010 to conspiracy and
securities fraud. He invested some of the money in Galleon and made a total of
$2.6m. Kumar, 52 years old, said he was approached by Rajaratnam - - a friend
from their time at the Wharton School at the
University of Pennsylvania in the early 1980s - - in late 2003 or early 2004
and began providing inside tips to him about McKinsey clients as far back as
2004, including on chip maker Advanced Micro Devices's (AMD) plans to acquire
ATI Technologies in 2006.
Manhattan US Attorney Preet Bharara stated:
"Two years ago, Raj Rajaratnam stood at the summit of
Wall Street, commanding his own financial empire. Then he was arrested, tried,
and convicted by a jury. Mr. Rajaratnam stood convicted 14 times over of
felonies, his empire exposed as a web of fraud and corruption that entangled
many. Today, Mr. Rajaratnam stood once more and faced justice which was meted
out to him. It is a sad conclusion to what once seemed to be a glittering story.
We can only hope that this case will be the wake-up call we said it should be
when Mr. Rajaratnam was arrested. Privileged professionals do not get a free
pass to pursue profit through corrupt means. The message is the same for
everyone no matter who you are or how much money you have -- obey the law or
face the fate of those who don’t."
According to the indictment filed in Manhattan
federal court, other court documents, and statements made during related court
From 2003 to March 2009, Rajaratnam repeatedly
traded on material, nonpublic information (inside information) pertaining to
upcoming earnings forecasts, mergers, acquisitions, and other business
combinations. As the evidence at trial showed, the inside information was given
as tips by insiders and others at hedge funds, public companies, and investor
relations firms - - including Goldman Sachs, Intel, IBM, McKinsey & Company,
Moody’s Investor Services, Market Street Partners, Akamai Technologies, and
Polycom Inc. Based on the inside information, Rajaratnam executed trades in the
stock of public companies, including Goldman Sachs, Clearwire, Akamai, AMD,
Intel, Polycom, and People Support. The court found Rajaratnam earned "well
over $50m" from his illegal trading.
The evidence at trial included, among other
things, recordings of wiretapped phone calls between Rajaratnam and his various
co-conspirators, including: Anil Kumar, a former senior partner and director at
McKinsey; Rajiv Goel, a former employee of Intel; Adam Smith, a former portfolio
manager and analyst at Galleon; and Danielle Chiesi, a former employee of the
hedge fund New Castle Partners. Rajaratnam engaged in overlapping conspiracies
to commit securities fraud with these individuals, as well as with Mark Kurland,
a co-founder at New Castle Partners, Robert Moffat, a former senior vice
president at IBM, and Roomy Khan, who traded securities on her own behalf.
In addition to his prison term, Rajaratnam, 54, of New York, was sentenced to
two years of supervised release and ordered to pay forfeiture in the amount of
$53,816,434 and a $10m fine. Rajaratnam will surrender to authorities on
November 28, 2011.