November 17, 2009 / 5:25 AM / 10 years ago

Who is Raj Rajaratnam? Don't ask in Sri Lanka

COLOMBO (Reuters) - Billionaire hedge fund titan Raj Rajaratnam’s shadow in Sri Lanka is so big that his arrest in the United States initially knocked 5 percent off the local stock market.

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

But ask about Rajaratnam on the island of birth and few will say anything about the man considered to be Sri Lanka’s richest, now accused in the largest hedge-fund related insider trading case in U.S. history. The silence speaks volumes about Sri Lanka’s scarred modern history, and its persistent entanglement in suspicion brewed by the 25-year war with the separatist Liberation Tigers of Tamil Eelam (LTTE), which Sri Lanka won in May.

“I really can’t speak about him,” said one former associate, echoing the comments of many people Reuters spoke with.

In addition to the U.S. probe of Galleon, Sri Lankan officials are investigating Rajaratnam’s finances after he made substantial donations in 2005 to a Tamil organization that was subsequently banned for its links to the LTTE.

Even in post-war Sri Lanka, suspicion can lead to arrest, and the government has the authority to seize money it links to the LTTE, making those who know the man deeply cautious of any comment.

Another simpler factor may be at work, according to a letter his lawyers sent to a New York court seeking reduced bail terms and vowing that Rajaratnam would defend himself vigorously in the country he considers home.

“Mr. Rajaratnam is a 52-year-old citizen of the United States who, although born in Sri Lanka, has lived in the United States for nearly 30 years,” the letter said.

As extraordinary as his success in building the Galleon Group hedge fund into a $7 billion behemoth at its peak, Rajaratnam’s story is typical of hundreds of thousands of minority Tamils who almost entirely severed ties to Sri Lanka as it slid into ethnic conflict.

By the time full-blown civil war erupted in 1983, many Tamils with the means to do so like Rajaratnam’s family had already left for Europe, North America and Australia for school and work.

Many sold their property and have never returned, instead forming a close-knit diaspora community.

The son of the chairman of the Sri Lankan arm of the Singer sewing machine company, Rajaratnam was born and raised into the privileged life of Colombo’s post-independence elite. He grew up in Cinnamon Gardens, an enclave of Colombo dominated by grand, whitewashed colonial homes flanked by palm trees, and attended the prestigious St. Thomas Preparatory School in Colombo that has minted many of Sri Lanka’s business and political leaders.

Rajaratnam left for England sometime in the mid-1970s, where he finished secondary school and graduated with an engineering degree from the University of Sussex in 1980.

By 1983, he earned an MBA from the University of Pennsylvania’s Wharton School.


One longtime family friend in Canada said Rajaratnam and his family, who are Christians, were typical of the well-to-do Tamils who originated from the northern Jaffna peninsula, the capital of Sri Lankan Tamil culture that figured in many battles during the war.

“They focus on education and family, they are all successful and they are not bourgeois. They support each other,” the friend said on condition of anonymity.

He expressed shock that Rajaratnam, who has two brothers and two sisters who are all American citizens, had been arrested.

“There is a difference in insider trading in Sri Lanka and the U.S. In Sri Lanka, that is the norm. But his family wouldn’t stoop to these things,” the friend said.

Sri Lanka’s stock market has enjoyed a powerful surge since the end of the conflict in May, with the CSE All-Share index having doubled so far in 2009.

Although Sri Lanka has strict laws against insider trading, lawyers and brokers say enforcement is weak and the relatively small number of players in the market means there is a coziness in the financial community that is almost unavoidable.

Rajaratnam has not been accused of any wrongdoing in Sri Lanka’s capital markets.

He rarely returns to Sri Lanka — friends say he was last on the island in 2005, and stayed at the Union Hilton residential hotel when he came since he owns no property under his name.

He was in the country to supervise the millions in charitable contributions he had given to rebuilding areas of the country after the devastating December 26, 2004, tsunami, and to look at potential investments, friends say.


It was at that time that Rajaratnam first drew the Sri Lankan authorities’ attention, namely because of the $5 million he gave to the Tamil Rehabilitation Organization (TRO) in 2005, which was among other donations he made to rebuild Sri Lanka after the tsunami.

“He gave money to the TRO before they were banned. Lots of people did that, especially after the tsunami struck,” one financial professional who dealt with Rajaratnam told Reuters on condition of anonymity.

Those donations came two years before the U.S. government declared the TRO a front for the Tamil Tigers, in just one example of how the LTTE cloaked its fund-raising activities.

The LTTE’s mafia-like control of Tamil cultural and charity groups worldwide helped generate $200-300 million a year, along with profits from gun-running, drug smuggling and extortion.

Rajaratnam’s lawyers say an accusations in an October 22 civil lawsuit in New Jersey by victims of Tamil Tiger attacks accusing him of funding the separatist group are “untrue” and “libelous.”

He denies involvement with the LTTE, which the United States and more than 30 other nations have designated a terrorist group.

The central bank last month said its long-running investigations into Rajaratnam’s finances were ongoing.

Additional reporting by Shihar Aneez in Colombo, Grant McCool in New York and Saeed Azhar in Singapore; Editing by Lincoln Feast

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