UPDATE 3-Rajaratnam's brother pleads not guilty to insider charges

Mon Mar 25, 2013 2:04pm EDT

* Rengan Rajaratnam charged with fraud, conspiracy

* FBI says Rajaratnam arrested Sunday at New York airport

* Older brother Raj Rajaratnam serving 11-year prison term

By Bernard Vaughan

NEW YORK, March 25 (Reuters) - Rengan Rajaratnam, the younger brother of imprisoned hedge fund manager Raj Rajaratnam, pleaded not guilty on Monday to insider trading charges.

The younger Rajaratnam entered his plea in Manhattan federal court, one day after his arrest at John F. Kennedy International Airport in New York. Vinoo Varghese, an attorney for Rajaratnam, said his client arrived in New York early Sunday morning, accompanied on a flight from Brazil by an FBI agent.

Prosecutors on Thursday accused Rengan Rajaratnam, 42, of conspiring with his brother to trade on non-public information concerning Clearwire Corp and Advanced Micro Devices Inc in 2008.

Rajaratnam appeared in court dressed in a blue dress shirt, blue jeans and a dark suit jacket Varghese gave him upon entering the courtroom.

"Not guilty, your honor," he said when U.S. District Judge Naomi Buchwald asked him for his plea. Rajaratnam agreed to the judge's request to refer to him as "R.R."

Lawyers for Rengan Rajaratnam said their client learned through news reports that he had been charged, and volunteered to return immediately from Brazil, where he had lived and worked for the past year, to defend himself.

"Within a matter of hours, Mr. Rajaratnam literally dropped everything and headed to the airport," Varghese told Buchwald. Varghese added that Rajaratnam offered to pay the FBI agent's plane ticket and that he was "mentally and physically drained" from the past 72 hours but determined to defend himself.

The government did not seek Rajaratnam's detention because he volunteered to U.S. authorities to return immediately to face the charges, Assistant U.S. Attorney David Massey said at the hearing. He remains free on a $1 million bond secured by $500,000 in cash and property, Massey said.

Rajaratnam, a U.S. citizen born in Sri Lanka, has surrendered his U.S. passport to the FBI and will be allowed to stay at a Manhattan residence, Massey said. He will also receive mental health counseling because of the stress he is under, Massey told the court.

Buchwald set June 4 for the next court date in the case.

Rengan Rajaratnam, whose full first name is Rajarengan, was a portfolio manager at the hedge fund Galleon Group, and the trades for which he was charged resulted in nearly $1.2 million of illegal profit, according to prosecutors.

The defendant was charged with six counts of securities fraud and one count of conspiracy, and faces up to 20 years in prison on each of the fraud counts.

He also faces separate U.S. Securities and Exchange Commission civil charges. These allege a broader scheme that netted $3 million in illicit gains following trades on stocks including Polycom Inc and Hilton Hotels.

Rengan Rajaratnam's arrest is the latest in a sweeping crackdown on insider trading by the U.S. government.

The office of U.S. Attorney Preet Bharara in Manhattan said it has charged 77 people in its investigation since October 2009, 71 of whom have since been convicted.

Raj Rajaratnam, 55, received an 11-year prison sentence in October 2011 after a jury convicted the former billionaire the previous May.

The cases are U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 13-cr-00211; and SEC v. Rajaratnam in the same court, No. 13-01894.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article