* Rengan Rajaratnam charged with fraud, conspiracy
* Older brother serving 11-year prison term
By Nate Raymond
NEW YORK, March 21 Raj Rajaratnam's younger
brother was indicted on charges of conspiring in the
insider-trading scheme for which the founder of the Galleon
Group hedge fund was convicted nearly two years ago, U.S.
prosecutors announced on Thursday.
Prosecutors said Rengan Rajaratnam, 42, conspired with his
older brother to trade on non-public information concerning
Clearwire Corp and Advanced Micro Devices Inc
Rengan Rajaratnam was a portfolio manager at Galleon, and
the trades for which he was charged resulted in nearly $1.2
million of illegal profit, according to U.S. Attorney Preet
Bharara in Manhattan, who announced the charges.
Rengan Rajaratnam 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 has not been arrested. He
is not in the United States and is believed to be in Brazil, a
person familiar with the matter said.
David Tobin, a lawyer for Rengan Rajaratnam, did not
immediately respond to a request for comment.
The charges arise from a broad U.S. government crackdown on
insider trading. Since October 2009, seventy-seven people have
been charged by Bharara's office in that probe, and 71 have been
convicted. The FBI and U.S. Securities and Exchange Commission
are still investigating.
Raj Rajaratnam, 55, received an 11-year prison sentence in
October 2011 after a jury convicted him the previous May.
He is appealing his conviction, as well as the government's
use of wiretaps to obtain it. Wiretap evidence was also used in
the case against Rengan Rajaratnam.
"Rengan Rajaratnam and his brother shared more than DNA,"
Bharara said in a statement. "They also shared a penchant for
The SEC filed separate civil charges against Rengan
Rajaratnam, whose full first name is Rajarengan.
The SEC lawsuit alleges a broader scheme that netted $3
million in illicit gains for Rengan Rajaratnam and hedge funds
he managed following trades on stocks including Polycom Inc
and Hilton Hotels.
The Polycom trade took place in January 2006 when Rengan
Rajaratnam was a portfolio manager at Sedna Capital Management,
which he founded in 2004.
Before founding the firm, he worked briefly at Steven
Cohen's SAC Capital Advisors LP as an analyst, the SEC said.
Some of the allegations in the criminal case relate to
activity that prosecutors said took place in March 2008. That
made it an imperative to bring securities fraud charges on those
allegations now, because of a five-year statute of limitations.
Thursday's charges focus on two particular instances of
Rajaratnam obtaining inside information.
The first came in March 2008 after Rajiv Goel, then an
executive at Intel Corp, told Raj Rajaratnam about Intel's plans
to make a $1 billion investment in Clearwire.
After a news report describing some details of that
transaction surfaced, the younger Rajaratnam allegedly said on a
phone call to his brother that the "Clearwire stuff ... just
"So, I don't know how much you got in today, but I think
(Clearwire's share price) is gonna rip tomorrow," Rengan
Rajaratnam said, referring to Raj Rajaratnam's Clearwire
purchases that day and the possible direction of its stock price
the next day.
Prosecutors said Rengan Rajaratnam earned $101,070 from
Clearwire trades in his personal brokerage account, while two
Galleon funds he oversaw earned a combined $1.08 million.
Goel cooperated with prosecutors in the probe. He pleaded
guilty to conspiracy to commit securities fraud in 2010 and was
sentenced in September to two years probation.
SPILLING THE BEANS
The second instance concerned information received from
former McKinsey & Co director Anil Kumar, who was sentenced to
two years probation last July following an earlier guilty plea
to securities fraud charges.
Prosecutors said that in August 2008 Kumar told Raj
Rajaratnam about a deal between McKinsey client AMD and the Abu
Dhabi Investment Authority, and that three hours later Raj
Rajaratnam advised his brother about it.
They said that after Raj Rajaratnam bought 3 million AMD
shares for a hedge fund he managed and 250,000 shares for a fund
his brother managed, Rengan Rajaratnam told his brother by phone
that another McKinsey partner "spilled his beans" and
"volunteered the information about the investments" in AMD.
The other McKinsey partner is David Palecek, according to
the SEC complaint. He died in 2010.
Catherine Redlich, a lawyer who represented Palecek in the
investigation, in an email said "there is no proof David ever
agreed to provide inside information to the Rajaratnams and no
proof that he received money or other benefits from them for
A representative for McKinsey did not immediately respond to
a request for comment.
Former McKinsey chief Rajat Gupta is separately appealing
his conviction and two-year prison term for feeding information
to Raj Rajaratnam that he had learned from board meetings at
Goldman Sachs Group Inc, where he had been a director.
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.