* Says exploring 'various alternatives' for the business
* Potential buyers emerge - source
(Adds quotes, details, background)
By Svea Herbst Bayliss and Joseph A. Giannone
BOSTON/NEW YORK, Oct 21 Galleon Group, whose
founder has been charged with masterminding the biggest-ever
insider-trading scheme involving hedge funds, is shutting
Less than a week after being arrested at his New York home,
Raj Rajaratnam told investors and employees in a letter that he
was winding down the Galleon funds. He initially said he
planned to keep his 12-year-old firm intact.
"I have decided that it is now in the best interest of our
investors and employees to conduct an orderly wind down of
Galleon's funds while we explore various alternatives for our
business," the 52-year-old billionaire wrote.
Rajaratnam, who says he is innocent, said in the Wednesday
letter that he plans to defend himself against the charges in
the same way he managed money -- with "intensity and focus."
His New York-based firm, which managed $3.7 billion at the
end of last week and boasted strong returns through September,
has attracted potential buyers, a source familiar with the
Federal prosecutors accused Rajaratnam and five other
individuals of illegally trading on nonpublic information in a
scheme that netted them $20 million. Rajaratnam is free on $100
The news that Galleon was shutting down was hardly a
surprise. Many Galleon investors, ranging from endowments to
wealthy individuals, have asked for their money back, and many
of the firm's 130 employees are looking for new jobs.
"I would imagine it is hard to have an ongoing business
when you are dealing with an issue like this," said Dick
DelBello, senior partner at hedge-fund service provider Conifer
Securities. "So, I am not surprised."
Pressure on Galleon has built since Rajaratnam and the
other five accused were arrested on Friday. By Monday,
investors had asked the firm to return $1.3 billion. Under
ordinary circumstances, investors would have to notify Galleon
by the middle of November of their plans to exit, and they
would get their money 45 days later, in early 2010.
To raise cash, Galleon traders began selling off positions
this week. Because the funds invested primarily in large and
heavily traded companies like Apple Inc (AAPL.O), Google Inc
(GOOG.O) and Bank of Americs Corp (BAC.N), investors expect to
see their money returned promptly in January, one investor
Soon after Rajaratnam was arrested, some of his portfolio
managers and analysts began looking for new jobs in an industry
that only recently began hiring again after heavy losses in
"Galleon had some top-flight people, and why should their
careers be ruined only because they got caught up with the
wrong leader?" said Brad Alford, founder of Alpha Capital
Management, an advisory firm that invests in hedge funds. "Some
of the top shops are picking over the wreckage already."
While news of the insider-trading scandal came as a shock,
many lawyers and investors feel it will hurt Rajaratnam rather
than the entire hedge fund industry.
"This shows that regulators are doing their jobs, and that
might be a positive thing for the industry," said Marc
Gottridge, a partner at law firm Lovells LLP.
Lawyers and industry observers agree that this marks the
end of Rajaratnam's once flourishing career, which allowed him
to rub shoulders with the world's savviest investors and top
His degree from the University of Pennsylvania's
prestigious Wharton School and his knack for building a team of
top investors turned Galleon into one of world's most prominent
technology hedge funds, along with Pequot Capital and Bowman
Capital. Pequot and Bowman have also closed.
"Now his name is totally toxic and will go down in the
annals of hedge fund history as a prominent failure," Alpha
Capital's Alford said.
(Reporting by Svea Herbst-Bayliss and Joseph Giannone; editing
by John Wallace)