Probe widens in Galleon case: report

CHICAGO Sat Oct 24, 2009 2:40pm EDT

Galleon hedge fund partner Raj Rajaratnam (L) is escorted by FBI agents after being taken into custody in New York October 16, 2009. REUTERS/Brendan McDermid

Galleon hedge fund partner Raj Rajaratnam (L) is escorted by FBI agents after being taken into custody in New York October 16, 2009.

Credit: Reuters/Brendan McDermid

CHICAGO (Reuters) - Federal prosecutors in the Galleon Group case have sent a subpoena to a former employee of SAC Capital Advisors, a sign that the scope of the probe into the largest hedge fund insider trading case in history is expanding, the Wall Street Journal reported, citing people familiar with the matter.

The subpoena seeks trading records from Richard Grodin, a former SAC hedge fund manager who employed a cooperating witness in the insider trading case announced last week, the Journal said.

Grodin left SAC in January 2004, said SAC spokesman Jonathan Gasthalter. Legendary trader Steven Cohen founded SAC, a Stamford, Connecticut-based hedge fund.

The Journal reported that the subpoena does not suggest wrongdoing. Nor does it suggest that Cohen -- one of the nation's most well known and successful hedge-fund managers -- has been implicated in the scandal.

Neither Galleon nor Grodin could be immediately reached to comment.

Last week, federal investigators brought criminal charges against Galleon founder Raj Rajaratnam and five others in the largest hedge fund insider trading case in history.

Galleon, which managed $3.7 billion at the end of last week and boasted strong returns through September, has told investors it will wind down its funds.

The trading scandal has also entangled big names such as Intel Corp, consulting firm McKinsey & Co, IBM, and rating agency Moody's.

According to regulators' complaints, an employee at investor relations firm Market Street Partners tipped off a Galleon informant in July 2007 that Google Inc's earnings would be below market expectations.

Galleon traded on that information, netting a profit of $9 million, the biggest illegal trades identified in the complaints, which said a total of $20 million had been made by trading on nonpublic information.

(Reporting by Lisa Shumaker, Editing by Sandra Maler)