Rajaratnam's Brother Drew Scrutiny
(Wall St. Journal cite at end)NOVEMBER 25, 2009
By SUSAN PULLIAM
Before federal authorities began wiretapping hedge-fund manager Raj Rajaratnam, they were already interviewing him about another topic of interest: a hedge fund run by his brother, Rengan.
In papers filed Tuesday in a New York federal court, the Galleon Group founder disclosed that he was deposed by federal authorities in 2007 in an insider-trading investigation involving "an unrelated hedge fund." That fund was run by Rengan Rajaratnam, Raj's brother, people familiar with the matter said. The investigation of Sedna began as an audit by the SEC and eventually turned into an insider-trading investigation into both Sedna and Galleon, a person close to the situation said.
The disclosure surfaced as Raj Rajaratnam denied civil insider-trading charges filed last month by the Securities and Exchange Commission. In response to the SEC complaint, Raj Rajaratnam's lawyers argued that the wiretaps used in an insider-trading case filed last month against him violated his constitutional rights. As part of that filing, Mr. Rajaratnam's lawyers argued the wiretaps were unnecessary because he was already providing information to the government in the 2007 investigation of his brother's hedge fund. The status of the investigation of the fund run by Rengan Rajaratnam, the brother, isn't clear. The SEC declined to comment, as did federal prosecutors bringing a separate criminal case against Raj Rajaratnam. A lawyer for Rengan Rajaratnam didn't return calls for comment. Rengan Rajaratnam hasn't been charged with any wrongdoing.
The Galleon insider-trading case is unique because it relies on extensive wiretap evidence, an investigative technique often used in drug and terrorism cases. The filing on Tuesday suggests Raj Rajaratnam will attempt to persuade the court to throw out some or all of the evidence the government gathered through wiretaps, the people familiar with the matter say. Raj Rajaratnam's lawyers are arguing that because he already was providing evidence to the U.S. there was no need for the government to wiretap his phones.
It is the latest twist in a sprawling case that has shaken Wall Street and Silicon Valley. In October, Raj Rajaratnam was charged, along with five others, including technology executives, with participating in an insider-trading ring. Earlier this month, 14 others also were charged, including a ring of day traders and smaller hedge-fund players. All the defendants have denied the charges.
People close to the situation say the hedge fund under earlier SEC investigation was called Sedna Capital Management and run by Rengan Rajaratnam until late 2007, when it was shut after suffering losses. One reason Sedna closed was the cost of complying with the SEC probe, a person familiar with the matter says. SEC investigators had been in Sedna's offices for five months, the person says. Galleon produced four million pages of documents to the SEC in association with the Sedna investigation, this person says.
It isn't clear why Galleon was asked to produce documents in the Sedna matter, or which stocks were involved in the investigation. The papers filed Tuesday say Raj Rajaratnam was interviewed by the SEC in the Sedna matter sometime before November 2007.
Rengan Rajaratnam, 39 years old, opened the hedge fund with assets of between $50 million and $100 million in 2004. It isn't clear who his investors were. He had worked for Galleon from 2001 to 2003. He went to SAC Capital Advisors, a hedge-fund giant run by Steven A. Cohen, in mid-2003 for six months. He shut Sedna at the end of 2007.
Rengan Rajaratnam's name adds to a growing list of individuals embroiled in the scandal who worked at the Connecticut hedge fund. Choo Beng Lee, a cooperating witness in the case, agreed to provide the government with information about trading by other traders at SAC during his time there until 2004. Several other witnesses, defendants and others involved in the case also have ties to SAC, people close to the situation say. An SAC representative declined to comment. Mr. Lee pleaded guilty in the case.
Rengan Rajaratnam helped finance "Today's Special," a film that debuted at the Indian Film Festival in Manhattan earlier this month.Rengan Rajaratnam helped finance "Today's Special," a film that debuted at the Indian Film Festival in Manhattan earlier this month. At Galleon, Rengan Rajaratnam had a large appetite for risk, former colleagues say. Rengan Rajaratnam returned to work at Galleon after his hedge fund closed. In 2008, Rengan Rajaratnam lost money in his portfolio at Galleon, which stood at between $10 million and $50 million, people close to the situation say.
After the losses, Raj Rajaratnam took away Rengan's portfolio for several months, the people say. Other junior portfolio managers suffered similar fates around the same time, these people say. Raj Rajaratnam allowed Rengan to again manage his fund at Galleon at the beginning of 2009, the people familiar with the matter say. A Galleon representative declined comment.
In the filing on Tuesday, Raj Rajaratnam also took aim at a government witness, Roomy Khan, who began cooperating in the broad insider-trading case in November 2007 and allowed the government to record her conversations with Mr. Rajaratnam. Mr. Rajaratnam's lawyers say the government made misrepresentations to the court in its applications for a wiretap, saying Ms. Khan hadn't been charged with any crimes, when she had been convicted of wired fraud in California in 2001. A representative of the SEC declined to comment.
Ms. Khan had pleaded guilty to the wire-fraud charge. following criminal allegations that she passed inside information to Galleon.
Ms. Khan received a sentence of six months' home detention and was ordered to pay a $30,000 fine and $120,000 in restitution.
On Oct. 19, 2009, Ms. Khan, who declined to comment, also pleaded guilty to charges of insider trading, conspiracy and obstruction of justice. The obstruction charge stemmed from her concession that she destroyed an email after the government investigation had begun.
Write to Susan Pulliam at susan.pulliam@wsj.com
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