Rengan Rajaratnam cleared, U.S. insider trading streak snapped

NEW YORK Tue Jul 8, 2014 6:11pm EDT

1 of 3. Rengan Rajaratnam (L) embraces his lawyer Daniel Gitner as they exit the U.S. District Court for the Southern District of New York in Lower Manhattan July 8, 2014.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Rengan Rajaratnam, the younger brother of convicted Galleon Group founder Raj Rajaratnam, was cleared on Tuesday of conspiring to engage in insider trading while at the hedge fund, ending a five-year winning streak by U.S. prosecutors.

After deliberating for less than four hours, a federal jury in New York found Rengan Rajaratnam, a former portfolio manager at Galleon, not guilty of the one conspiracy count he faced following the mid-trial dismissal by a judge of two more serious fraud charges.

Rajaratnam, 43, who was living in Brazil at the time of his indictment, hugged his lawyers after the jurors were dismissed.

"You can go back to Brazil for the finals," U.S. District Judge Naomi Reice Buchwald said, referring to the World Cup.

"Absolutely," Rajaratnam said.

Three years after jurors in the same courthouse convicted Raj Rajaratnam, 57, for an insider trading scheme that resulted in $63.8 million in illicit profit. He is serving an 11-year prison sentence.

Before Tuesday, a crackdown on insider trading led by Manhattan U.S. Attorney Preet Bharara's office had resulted in the conviction of 81 people with no acquittals since October 2009.

"While we are disappointed with the verdict on the sole count that the jury was permitted to consider, we respect the jury trial system whatever the outcome," Bharara said in a statement.

Several jurors said prosecutors failed to show Rengan Rajaratnam knowingly conspired with his brother.

"We felt like a lot of the trial was about Raj," said juror Catherine Wolcott, a graphic designer. "We were waiting to hear more about Rengan, who was the actual person on trial. By the end, we were all like, 'Where's the evidence?'"

The acquittal followed significant setbacks in the case. Rengan Rajaratnam faced six counts of securities fraud and the conspiracy charge when first indicted in March 2013.

Four securities fraud charges were dropped pretrial and Buchwald dismissed two fraud counts for lack of evidence after the prosecution rested its case.

The government claimed a tip to Raj Rajaratnam in March 2008 - that Intel Corp was planning to invest $1 billion in technology company Clearwire - enabled Galleon to reap $700,000 and Rengan to earn $100,000.

Prosecutors said the tip came from Rajiv Goel, a former Intel executive who pleaded guilty in 2010 and was sentenced to two years of probation.

After Buchwald tossed out charges that Rajaratnam traded in Clearwire, prosecutors were limited to arguing the brothers conspired to engage in insider trading in the company and Advanced Micro Devices Inc.

Prosecutors said in August 2008 Raj Rajaratnam told his brother of a "handshake" deal between AMD and an Abu Dhabi state-owned company he learned about from Anil Kumar, a McKinsey & Co partner.

In a wire tapped recording of a call that same day, Rengan Rajaratnam told his brother he had talked with another McKinsey partner, David Palecek, who "spilled his beans" and encouraged him to buy AMD.

Despite trading on the tip, Galleon sold AMD for a loss due to market declines, prosecutors said. Rengan Rajaratnam, meanwhile, earned $40,000 personally trading AMD, prosecutors said.

Kumar pleaded guilty in 2010 and was later sentenced to two years of probation. Palecek died in 2010.

Rengan Rajaratnam's attorney, Daniel Gitner, said his client was simply seeking investment advice from Palecek. Gitner said Tuesday his client "looks forward to getting on with his life."

"Today is the day Rengan has been waiting for," he said.

Wolcott, the juror, said she did not think Rengan Rajaratnam intended to engage in any illicit trading.

"He was probably just trying to impress his brother," she said. "Raj kept his cards close to the vest. Rengan was sort of a puppy playing in the field, trying to get his attention."

While Rengan Rajaratnam was not convicted of criminal charges, there is a pending civil lawsuit by the U.S. Securities and Exchange Commission. The lawsuit contends that there was a broader scheme involving additional stocks and trading during his time at Sedna Capital Management, a fund he founded and worked at until 2007. That case, which had been suspended during the criminal case, will likely be reactivated. A spokeswoman for the SEC did not immediately respond to request for comment.

The case is U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 13-00211.

(Editing by Noeleen Walder, Nick Zieminski, Jonathan Oatis and Andre Grenon)

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