NEW YORK — US authorities Friday charged a billionaire hedge fund manager and five others with insider trading that netted 20 million dollars on trades in Google, Hilton Hotels Corp. and other companies.
The Justice Department filed the charges which named Raj Rajaratnam, head of the Galleon Management hedge fund and listed on the Forbes magazine list of billionaires as the 559th richest person in the world with 1.3 billion dollars.
Also charged in the scheme were Danielle Chiesi and Mark Kurkland, employees of the New Castle hedge fund group of the defunct Bear Stearns; Rajiv Goel of Intel Capital, the investment arm of Intel Corp.; Anil Kumar of the consultancy McKinsey & Co; and IBM senior vice president Robert Moffat.
“All are charged with participating in insider trading schemes that together netted more than 20 million dollars in illegal profits,” said a statement from US Attorney Preet Bharara of New York.
“This case represents the first time that court-authorized wiretaps have been used to target significant insider trading on Wall Street.”
“This case should be a wake up call for Wall Street,” Bharara said.
“It should be a wake up call for every hedge fund manager and every Wall Street trader and every corporate executive who is even thinking about engaging in insider trading…Today, tomorrow, next week, the week after, privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?”
According to the complaint, the defendants used inside information to make illegal profits on publicly traded firms from 2006 to 2008 including Polycom, Hilton, Google, Clearwire, Akamai, Advanced Micro Devices and People Support Inc.
The case was helped by a cooperating witness, who indicated that Rajaratnam learned, for example in 2007 that Hilton was going to be taken private, enabling him to buy hundreds of thousands of shares in advance for a profit of four million dollars.
In another case, the group benefited from inside data on Akamai, an Internet service group, when it was about to lower its guidance for earnings in 2008.
New Castle sold the shares “short” and earned a profit of more than 2.4 million dollars, officials said.
A related civil complaint from the Securities and Exchange Commission seeks the return of 25 million dollars in “ill-gotten gains plus prejudgment interest,” along with other penalties.
According to Forbes, Rajaratnam is a native of Sri Lanka who studied in Britain and the United States before creating the hedge fund, believed to manage some six billion dollars in assets.