What is insider trading?
Insider trading involves trading in a public company’s stock by someone who has non-public, material information about that stock for any reason. Insider trading can be either illegal or legal depending on when the insider makes the trade. Insider trading is illegal when the material information is still non-public, and this sort of insider trading comes with harsh consequences.
Material nonpublic information is any information that could substantially impact an investor’s decision to buy or sell the security that has not been made available to the public.
Background
Raj Rajaratnam (born Rajakumaran Rajaratnam; June 15, 1957) is a Sri Lankan-American former hedge fund manager and founder of the Galleon Group, a New York-based hedge fund management firm
On October 16, 2009, he was arrested by the FBI for insider trading, which also caused the Galleon Group to fold. He stood trial in U.S. v Rajaratnam (09 Cr. 01184) in the United States District Court for the Southern District of New York, and on May 11, 2011, was found guilty on all 14 counts of conspiracy and securities fraud. On October 13, 2011, Rajaratnam was sentenced to 11 years in prison and fined a criminal and civil penalty of over $150 million combined.
Conviction and Imprisonment for Insider Trading
Rajaratnam gained profit from information received from:
*Robert Moffat, a senior executive of IBM, considered next in line to be CEO.
*Anil Kumar, a senior executive of McKinsey & Company, and close friend of Rajat Gupta (its former managing director) who was later also convicted of passing information to Rajaratnam.
*Rajiv Goel, a midlevel Intel Capital executive.
*Roomy Khan, previously convicted of wire fraud for providing inside information from her employer, Intel, to Rajaratnam.
It was reported that Rajaratnam, Goel, and Kumar were all part of the class of 1983 from Wharton business school
Rajaratnam also conspired to get confidential information on the $5 billion purchase by Warren Buffett‘s Berkshire Hathaway of Goldman preferred stock prior to the September 2008 public announcement of that transaction. The Wall Street Journal reported that a former member of the board of directors of Goldman Sachs and former McKinsey & Company chief executive Rajat Gupta told Rajaratnam about Berkshire’s investment before it became public. Gupta stood to profit as would-be chairman of Galleon International, a co-founder of New Silk Route with Rajaratnam, and as a friend of Rajaratnam. In March 2011 Gupta was charged in an administrative proceeding by the SEC. Gupta maintained his innocence, counter-sued, and won dismissal of the administrative charge, but was then arrested on criminal charges.
On May 11, 2011, Rajaratnam was found guilty on all 14 counts of conspiracy and securities fraud. On October 13, 2011, Rajaratnam was sentenced to 11 years in prison by Judge Richard Holwell. To date, this was the longest prison sentence ever handed out for insider trading. The thirteen other defendants connected to Rajaratnam’s case received prison sentences averaging approximately three years each
Rajaratnam was incarcerated at Federal Medical Center, Devens in Ayer, Massachusetts, an administrative facility housing male offenders requiring specialized or long-term medical or mental health care. Rajaratnam was released to home confinement in his Upper East Side Manhattan apartment, located on Sutton Place, in the summer of 2019.
Career and contribution to charitable and political organizaton
Rajaratnam started his career as a lending officer at Chase Manhattan Bank where he specialized in business loans to technology companies. He joined the investment banking boutique Needham & Co. as an analyst in 1985, where he focused on the consumer electronics industry. He rapidly rose through the ranks, becoming the head of research in 1987 and the president in 1991, at the age of 34. At the company’s behest, he started a hedge fund—the Needham Emerging Growth Partnership—in March 1992, which he later bought and renamed Galleon Group.
His hedge fund was valued at $3.7 billion in 2009, down from a peak of $7 billion in 2008. According to a 2009 investor letter his $1.2 billion Diversified Fund had a net annualized return of 22.3 percent. Rajaratnam has been featured among the elite US money managers in a book called The New Investment Superstars. Initially, he primarily invested in technology and healthcare companies. He said that his best ideas came from frequent visits with the companies in which he invested and from conversations with executives who invested in his fund.
Rajaratnam alongside other private donors, partnered with the US State Department to fund mine detection dogs for humanitarian demining war-affected areas in Sri Lanka. He recalled his visits to the mine-impacted areas of Sri Lanka and underscored the humanitarian toll that mines have taken. Recalling his encounter with a young child in Kilinochchi who had lost both legs to a land mine, Rajaratnam stated that this particular image that is etched in his memory “made it an easy decision to write the check.”
He helped Sri Lankans recover after the 2004 tsunami. Rajaratnam was in Sri Lanka when the 2004 Asian Tsunami hit and donated $5,000,000 to for the construction of 400 new homes for the island’s various ethinic groups – Sinhalese and Tamils.
Rajaratnam was also a contributor to various causes that promoted development in the Indian subcontinent and programs that benefited low income South Asian youth in the New York area.
Mr. Rajaratnam served on the board of the Harlem Children’s Zone.
Rajaratnam contributed $3.5 million to the Tamils Rehabilitation Organisation (TRO), a group whose assets were frozen by the USA due to its alleged close connections to the Tamil Tigers (LTTE) which are proscribed as a terrorist organization in 32 countries. TRO’s offices were raided by the FBI in 2006 but the organization was never charged with any wrongdoing.The chief of the investigations unit of at the Sri Lankan central bank found that Mr. Rajaratnam’s donations were made in good faith. At the time the contributions were made the TRO was not outlawed by the U.S. nor Sri Lankan governments. The Sri Lankan justice ministry has acknowledged and thanked Mr. Rajaratnam for the millions of dollars contributed to rehabilitating child soldiers conscripted by the Tamil Tigers.
The Sri Lankan government stated that Rajaratnam had contributed for several years of the Sri Lankan Civil War to the LTTE with millions of dollars and that, as a consequence, he was under investigation in Sri Lanka. However, the senior military official could not give specific details about the contributions to the LTTE. Rajaratnam had recently pledged a $1 million to rehabilitate former LTTE combatants.
According to the Federal Election Commission, Rajaratnam has made over $118,000 in political contributions in five years. He contributed to the Democratic National Committee and various campaigns on behalf of Barack Obama, Hillary Clinton, Chuck Schumer, and Bob Menendez.
Raj Rajaratnam, founder of Galleon Group, sits down with CNBC in his first interview since being released from prison two years ago to discuss his new book ‘Uneven Justice’
posted by gandatmadi46@yahoo.com