Billionaire Raj Rajaratnam Guilty in Insider Trading Case

By Cynthia Hsu, Esq. on May 11, 2011 | Last updated on March 21, 2019

Raj Rajaratnam, billionaire investor and founder of the Galleon Group, has been found guilty of insider trading, fraud and conspiracy. Rajaratnam was convicted on all 14 counts by a federal jury in the U.S. District Court, Southern District of New York.

One of the richest men in the world, Rajaratnam faces at least 15-1/2 years in prison, reports Reuters. The trial took place over the course of two months, putting Rajaratnam, insider trading, and government phone taps into the spotlight.

The Galleon Group, Rajaratnam's hedge fund, managed more than $7 billion in assets in its heyday, reports The New York Times. Rajaratnam was arrested in 2009.

"The message today is clear - there are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have," federal prosecutor Preet Bharara told The New York Times.

The case against Rajaratnam relied heavily on the use of wiretap evidence. The 45 tapes shed light on Rajaratnam's dealings with other stock traders and corporate insiders. Investigators tapped Rajaratnam's line, and over a 9-month period in 2008, listened in as he traded illegal information, according to The New York Times.

Rajaratnam's defense attorneys had argued that he made his trading decisions based not on insider tips, but on legally public information such as news stories. Prosecutors argued that while Rajaratnam relied on legitimate information, he also utilized illegal sources, violating insider trading laws in the process.

"The defendant knew the rules, but he did not care. Cheating became part of his business model," fellow prosecutor Reed Brodsky said, reports The New York Times.

Rajaratnam's defense has indicated that it will appeal. At issue is whether or not the wiretap was legal. Before the trial, the defense failed to get the tapes excluded, despite their claim that the FBI obtained the tapes through a faulty warrant, according to the AP. In most cases, wiretapping is illegal, unless the authorities have probable cause that the phone conversations will reveal or solve a crime.

"We're gonna take an appeal for this conviction. We started out with 37 stocks we're down to 14 so the score I'd say is 23-14 in favor of the defense. We'll see you in the 2nd Circuit," said John Dowd, Rajaratnam's main lawyer according to Reuters. Dowd's comments were in reference to the 37 insider trades that the federal government had initially pursued. Only 14 of those trades made it to trial, Rajaratnam included, reports the AP.

Raj Rajaratnam is currently still free on bail. He will be sentenced on July 29.

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