Raj Rajaratnam

Raj Rajaratnam (Tamil: ராஜ் ராஜரத்தினம்; born Rajakumaran Rajaratnam; June 15, 1957) is a Sri Lankan-American former hedge fund manager and founder of the Galleon Group, a New York-based hedge fund management firm.[3][4] On October 16, 2009, he was arrested by the FBI for insider trading, which also caused the Galleon Group to fold.[5] He stood trial in U.S. v Rajaratnam (09 Cr. 01184) in the United States District Court for the Southern District of New York, and on May 11, 2011, was found guilty on all 14 counts of conspiracy and securities fraud.[6][7] On October 13, 2011, Rajaratnam was sentenced to 11 years in prison[8] and fined a criminal and civil penalty of over $150 million combined.[9]

For other uses, see Rajaratnam.

Raj Rajaratnam
Born
Rajakumaran Rajaratnam[1]

(1957-06-15) June 15, 1957[2]
Colombo, Dominion of Ceylon
CitizenshipAmerican
Alma mater
OccupationHedge fund manager
RelativesRengan Rajaratnam

Rajaratnam was incarcerated at Federal Medical Center, Devens in Ayer, Massachusetts, an administrative facility housing male offenders requiring specialized or long-term medical or mental health care. Rajaratnam was released to home confinement in his Upper East Side Manhattan apartment, located on Sutton Place, in the summer of 2019.

Background and career

Rajaratnam is an ethnic Sri Lankan Tamil born in Colombo in what was then the Dominion of Ceylon (present-day Sri Lanka). His wealthy father, J. M. Rajaratnam, was the head of the Singer Sewing Machine Co. in South Asia.[10] He attended S. Thomas' Preparatory School, Kollupitiya before his family migrated to England.[11][12] Rajaratnam's family emigrated to England in 1971, concerned that the post-independence Sri Lankan ethnic violence against the Tamils would get more violent.[13] He attended Dulwich College in London[14] and later studied engineering at the University of Sussex, and then earned an M.B.A. from the Wharton School of the University of Pennsylvania in 1983.[10]

Rajaratnam started his career as a lending officer at Chase Manhattan Bank where he specialized in business loans to technology companies. He joined the investment banking boutique Needham & Co. as an analyst in 1985, where he focused on the consumer electronics industry. He rapidly rose through the ranks, becoming the head of research in 1987 and the president in 1991, at the age of 34.[15] At the company's behest, he started a hedge fund—the Needham Emerging Growth Partnership—in March 1992, which he later bought and renamed Galleon Group.

His hedge fund was valued at $3.7 billion in 2009, down from a peak of $7 billion in 2008. According to a 2009 investor letter his $1.2 billion Diversified Fund had a net annualized return of 22.3 percent.[15] Rajaratnam has been featured among the elite US money managers in a book called The New Investment Superstars. Initially, he primarily invested in technology and healthcare companies. He said that his best ideas came from frequent visits with the companies in which he invested and from conversations with executives who invested in his fund.[16]

After Rajaratnam's arrest, Galleon received requests from its investors for the withdrawal of $1.3 billion, which caused the fund to close.[17] In a letter dated October 21, 2009, Rajaratnam informed his employees and investors that he intended to wind down all the funds of the Galleon Group. Investors received the full balance of their initial investments, plus profits, in January 2010.[18]

Contributions to charitable and political organizations

In November 2009, Rajaratnam pledged to donate $1 million to help with the rehabilitation of the LTTE combatants.[19] He donated to clear land mines in the war-affected areas in Sri Lanka. He recalled his visits to the mine-impacted areas of Sri Lanka and underscored the humanitarian toll that mines have taken. Recalling his encounter with a young child in Kilinochchi who had lost both legs to a land mine, Rajaratnam stated that this particular image that is etched in his memory "made it an easy decision to write the check."[20] He helped Sri Lankans recover after the 2004 tsunami.[21] Rajaratnam was also a contributor to various causes that promoted development in the Indian subcontinent and programs that benefited low income South Asian youth in the New York area.

According to the Federal Election Commission, Rajaratnam has made over $118,000 in political contributions in five years.[22] He contributed to the Democratic National Committee and various campaigns on behalf of Barack Obama, Hillary Clinton, Chuck Schumer, and Bob Menendez.[22]

Controversy

Rajaratnam contributed $3.5 million to the Tamils Rehabilitation Organisation (TRO), a group whose assets were frozen by the USA due to its close connections to the Tamil Tigers (LTTE) which are proscribed as a terrorist organization in 32 countries.[23][24][25] TRO's offices were raided by the FBI in 2006 but the organization was never charged with any wrongdoing.[26]

The Sri Lankan government stated that Rajaratnam had contributed for several years of the Sri Lankan Civil War to the LTTE with millions of dollars and that, as a consequence, he was under investigation in Sri Lanka.[27] However, the senior military official could not give specific details about the contributions to the LTTE. Rajaratnam had recently pledged a $1 million to rehabilitate former LTTE combatants.[19]

Conviction and imprisonment for insider trading
Additional context at Raj Rajaratnam/Galleon Group, Anil Kumar, and Rajat Gupta insider trading cases

On Friday October 16, 2009, Raj Rajaratnam was arrested by the FBI for insider trading in the stock of several publicly traded companies. U.S. Attorney Preet Bharara put the total profits in the scheme at over $60 million, telling a news conference that it was the largest hedge fund insider trading case in United States history.[5][28] Jim Walden, an attorney for Rajaratnam, said his client is innocent and would fight the insider-trading charges.[29]

Rajaratnam profited from information received from:

  • Robert Moffat, a senior executive of IBM, considered next in line to be CEO.[30]
  • Anil Kumar, a senior executive of McKinsey & Company, and close friend of Rajat Gupta (its former managing director) who was later also convicted of passing information to Rajaratnam.
  • Rajiv Goel, a midlevel Intel Capital executive.
  • Roomy Khan, previously convicted of wire fraud for providing inside information from her employer, Intel, to Rajaratnam.[31]

It was reported that Rajaratnam, Goel, and Kumar were all part of the class of 1983 from Wharton business school.[32]

The Sri Lankan stock market fell sharply after Rajaratnam was arrested on insider trading charges in October 2009.[33] Sri Lanka's Securities and Exchange Commission is reviewing the active stock trading of Raj Rajaratnam with a view of identifying any insider trading.[34]

Rajaratnam also conspired to get confidential information on the $5 billion purchase by Warren Buffett's Berkshire Hathaway of Goldman preferred stock prior to the September 2008 public announcement of that transaction. The Wall Street Journal reported that a former member of the board of directors of Goldman Sachs and former McKinsey & Company chief executive Rajat Gupta told Rajaratnam about Berkshire's investment before it became public.[35] Gupta stood to profit as would-be chairman of Galleon International, a co-founder of New Silk Route with Rajaratnam, and as a friend of Rajaratnam. In March 2011 Gupta was charged in an administrative proceeding by the SEC. Gupta maintained his innocence, counter-sued, and won dismissal of the administrative charge, but was then arrested on criminal charges.

On May 11, 2011, Rajaratnam was found guilty on all 14 counts of conspiracy and securities fraud.[36] On October 13, 2011, Rajaratnam was sentenced to 11 years in prison by Judge Richard Holwell.[37] To date, this was the longest prison sentence ever handed out for insider trading.[38] The thirteen other defendants connected to Rajaratnam's case received prison sentences averaging approximately three years each.[38]

Rajaratnam served the first years of his 11-year sentence in Ayer, Massachusetts.[39] His appeal to the United States Court of Appeals for the Second Circuit was argued in October 2012 by Patricia Millett, who subsequently became a federal Court of Appeals judge herself on the United States Court of Appeals for the District of Columbia Circuit on December 10, 2013.[40]

Updates

U.S. District Judge Loretta Preska in Manhattan on March 3, 2017, rejected Rajaratnam's bid to void much of his insider trading conviction and shorten his 11-year prison sentence, on account of Rajaratnam failing to show his actual innocence on five of the 14 counts on which he was convicted, or that two other counts should be vacated because the main government witness committed perjury. Preska also rejected Rajaratnam's argument that his trial counsel was ineffective, and denied Rajaratnam's bid to reduce the $53.8 million he agreed to forfeit to about $4.3 million.

Prosecutors said Rajaratnam made up to $63.8 million from 2003 to 2009 through insider trading in stocks such as eBay, Goldman Sachs, and Google. Rajaratnam was convicted in May 2011 on nine counts of securities fraud and five counts of conspiracy. He served 8 years in prison.

See also

References
  1. Birth name per Naturalization records at ancestry.com
  2. Berenson, Alex (November 9, 2009). "Swagger in the Spotlight". The New York Times. Retrieved May 12, 2011.
  3. Berenson, Alex (November 2, 2009). "For Galleon Executive, Swagger in the Spotlight". The New York Times. Retrieved November 2, 2009.
  4. "#236 Raj Rajaratnam". Forbes. Retrieved February 19, 2009.
  5. Michael J. De La Merced; Zachery Kouwe (October 18, 2009). "Arrest of Hedge Fund Chief Unsettles the Industry". The New York Times. Retrieved October 19, 2009.
  6. Rajaratnam Guilty on All Counts in U.S. Insider-Trading Case
  7. Whitehouse, Kaja (May 11, 2011). "Raj guilty on all 14 counts, New York Post, May 11, 2011". New York Post. Retrieved October 17, 2011.
  8. Irwin, Neil (February 28, 2011). "Hedge fund billionaire gets 11-year sentence in fraud case". The Washington Post. Retrieved October 17, 2011.
  9. "Judge fines Rajaratnam $92 million". Hindustan Times. New York. Associated Press. November 9, 2011. Retrieved December 6, 2011.
  10. Mehta, Suketu, "The Outsider: In an exclusive interview, Raj Rajaratnam reveals ...", The Daily Beast, October 23, 2011; retrieved 2011-10-26.
  11. "First Guardian Equities – Raj Rajaratnam Shareholder profile". Archived from the original on June 27, 2008.
  12. "Bloomberg – Raj Rajaratnam profile". October 19, 2009.
  13. Mehta, Suketu. "The Outsider", Newsweek 158.18 (2011): 46–51. Academic Search Premier, September 18, 2012.
  14. Lattman, Peter. (2012-12-13) Raj Rajaratnam Speaks - NYTimes.com. Dealbook.nytimes.com. Retrieved on 2013-07-18.
  15. Burton, Katherine; Saijel Kishan (October 19, 2009). "Raj Rajaratnam Became Billionaire Demanding Edge". Bloomberg. Retrieved October 19, 2009.
  16. Lois Peltz, The New Investment Superstars, Wiley, 2001; ISBN 978-0-471-40313-5
  17. Pulliam, Susan; Gregory Zuckerman (October 20, 2009). "Galleon Clients Abandon Ship". The Wall Street Journal. Retrieved October 20, 2009.
  18. Checkler, Joseph (October 21, 2009). "Galleon to Wind Down Hedge Funds". The Wall Street Journal. Retrieved October 21, 2009.
  19. "Raj Rajaratnam's million dollars – A fine starting point".
  20. "Corporate And Private Donors Contribute $120,000 Funding Six Mine Detection Dogs For Humanitarian Demining In Sri Lanka".
  21. "Helping Out the Homeland".
  22. Esposito, Richard, Kristin Jones, Anna Schecter and Brian Ross (October 16, 2009). "Raj Rajaratnam Indicted in $20 Million Insider Trading Case". ABC News. Retrieved May 12, 2011.CS1 maint: multiple names: authors list (link)
  23. "Indian Court upholds LTTE ban". BBC. Retrieved October 17, 2011.
  24. Daya Gamage – US National Correspondent Asian Tribune. "Raj Rajaratnam simultaneously funds Sri Lanka terror group and US Democratic Party". Asian Tribune. Retrieved August 11, 2010.
  25. Daya Gamage – US National Correspondent Asian Tribune. "Sri Lanka born Raj Rajaratnam indicted by FBI for insider trading in New York". Asian Tribune. Retrieved August 11, 2010.
  26. Officials Say Investor's Donations Wound Up With Sri Lanka Rebels, The Wall Street Journal, October 19, 2009.
  27. James Fontanella-Khan. Financial Times.com 'Sri Lanka claims Rajaratnam gave Tamil Tigers ‘millions’', ft.com, October 18, 2009.
  28. "SEC Charges Billionaire Hedge-Fund Manager with Insider Trading – Dispatch – WSJ". The Wall Street Journal. October 16, 2009. Retrieved August 11, 2010.
  29. "Officials Say Investor's Donations Wound Up With Sri Lanka Rebels". The Wall Street Journal. October 19, 2009. Retrieved August 11, 2010.
  30. Bandler, James (July 6, 2010). "Dangerous liaisons at IBM: Inside the biggest hedge fund insider-trading ring". CNN.
  31. USDC NDCA case no. 5:01-cr-20029-JW USA v. Khan
  32. O'Connor, Sarah (October 20, 2009). "Class of '83 author recalls 'likeable' guy". Financial Times. Retrieved October 21, 2009.
  33. "Sri Lanka Stocks Fall on Rajaratnam's Fund Redemption Concerns". Bloomberg. October 20, 2009.
  34. "Sri Lanka Investigates Rajaratnam". lankaenews.com. Retrieved August 11, 2010.
  35. McCool, Grant (May 14, 2010). "Exclude Goldman, other stocks from case: Rajaratnam". Reuters. Retrieved August 11, 2010.
  36. Lattman, Peter; Ahmed, Azam (May 11, 2011). "Galleon's Rajaratnam Found Guilty". The New York Times. Retrieved May 11, 2011.
  37. Bray, Chad; Pulliam, Susan (October 14, 2011). "Rajaratnam Gets 11 Years in Insider-Trading Case". The Wall Street Journal. p. A1. Retrieved October 13, 2011.
  38. Lattman, Peter (October 13, 2011). "Galleon Chief Sentenced to 11-Year Term in Insider Case". Dealbook.The New York Times. Retrieved October 17, 2011.
  39. Jeffrey, Don, "Rajat Gupta Lawsuit Dismissal Opposed by Goldman Investor", Bloomberg, December 7, 2011; retrieved 2011-12-18.
  40. https://www.fjc.gov/history/judges/millett-patricia-ann
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