本文发表在 rolia.net 枫下论坛Six Charged in Vast Insider-Trading Ring
By JENNY STRASBURG and CHAD BRAY
In a case echoing the scandals of the 1980s, federal authorities exposed what they claim is the biggest insider-trading ring in a generation -- a conspiracy in which a hedge-fund kingpin and executives at blue-chip firms including IBM and Intel allegedly connived to profit on Google and other big-name stocks.
At the center was Raj Rajaratnam, founder of Galleon Group, a New York-based fund firm that manages $3.7 billion. A native of Sri Lanka, he spent years carving a reputation as a meticulous investor in technology stocks, building a fortune estimated at $1.5 billion.
Mr. Rajaratnam, 52 years old, was led away from his apartment in New York's Sutton Place neighborhood after a 6 a.m. raid by the Federal Bureau of Investigation.
Hours later, the U.S. Attorney in Manhattan charged him and three others with securities fraud and conspiracy to commit securities fraud, and two others with conspiracy. The Securities and Exchange Commission leveled civil charges of insider trading against all six. Friday night, the judge set $100 million bail for Mr. Rajaratnam and lower bail for the others.
The case casts a spotlight on a financial crime -- insider trading -- with a long history on Wall Street. It is illegal to trade based on corporate information not disseminated to the public. But over the decades, a rogue's gallery of investors has succumbed to that lure.
The crime erupted in an epidemic in the late 1980s, following a surge in takeovers that put armies of bankers and lawyers in possession of market-moving information about merger plans and tactics. At the center was Ivan Boesky, an arbitrageur who cultivated executives and investment bankers, ultimately paying a $100 million penalty for trading on information from a Drexel Burnham Lambert banker. He served 22 months in prison.
Since the 1980s, Wall Street has changed, with hedge funds acquiring power and influence. But the game of gleaning information still relies on cultivating sources in positions to know corporate secrets. Funds employ analysts and investigators to seek an edge in boosting returns and keeping investors on board. Like Mr. Boesky, Mr. Rajaratnam is an outsider who made it big on Wall Street.
The case against him reads like a thriller. An unnamed cooperating witness, described as a onetime Galleon employee, helped spark the investigation, taping conversations with Mr. Rajaratnam. That led to broader wiretaps that capture the bravado of traders looking for an advantage. Prosecutors said the case is the first to use wiretaps for pursuing insider-trading charges.
The others taken into custody and charged were:
Robert Moffat, 53, an executive at International Business Machines Corp. in charge of its supply chain, who recently was also given responsibility for its hardware, server and its semiconductor business -- and has been considered a potential future candidate for CEO.
Rajiv Goel, 51, an executive in the treasury department of Intel Corp., who graduated from the University of Pennsylvania's Wharton School in 1983, the same year as Mr. Rajaratnam.
Anil Kumar, 51, a director at management-consulting firm McKinsey & Co., whom the SEC described as a friend of Rajaratnam and investor in Galleon funds.
Mark Kurland, 60, of New Castle Partners LLC, a stock-trading hedge-fund group started in 1995 at Bear Stearns Asset Management Inc.
Danielle Chiesi, 43, a portfolio manager at New Castle.
The complaints allege the group earned $20 million in improper gains. Messrs. Kurland and Moffat were charged with conspiracy but not with fraud.
Mr. Rajaratnam has recorded average annual returns of 21% for Galleon's biggest fund, soundly beating the S&P-500 index, according to marketing documents. Galleon once oversaw more than $7 billion but shrank last year and faced withdrawals at year end, said a person familiar with it.
Of particular value to funds are insights of executives working directly in an industry, who might provide gossip or "market color." There is nothing inherently wrong with such conversations, but when information is passed that may affect a stock price, traders and executives expose themselves to potential insider-trading allegations.
Jim Walden, a lawyer for Mr. Rajaratnam, said, "He's innocent. We're going to fight the charges."
Earlier Friday, at a bail hearing, Mr. Walden said that the prosecutors' theory in the case was novel, noting they had argued in part that Mr. Rajaratnam encouraged an alleged co-conspirator to leave an email trial in order to help conceal the scheme. He said prosecutors and investigators appeared to have misconstrued terms his client used in his business. "They don't understand the business Mr. Rajaratnam was legitimately employed in," Mr. Walden said.
Relying on phone wiretaps, the criminal complaint described a period from 2006 and 2008 when Mr. Rajaratnam and his group allegedly swapped information that could move a stock. Wiretap transcripts appeared to show Mr. Rajaratnam working closely with Ms. Chiesi, with her serving as a key link between him and a network of contacts.
Excerpts of taped conversations contained in court filings purported to show rapid-fire exchanges of information, and strategies about how best to trade on it. The wiretaps captured the high-pressure world of hedge-fund trading, as the duo discussed how certain information would weigh on coming earnings announcements of IBM, Akamai Technologies Inc. and others.
The transcripts showed Ms. Chiesi talking with Mr. Kurland, quoting him as telling her in August 2008: "Don't put anything in email.... Don't email even Raj."
Mr. Rajaratnam and Ms. Chiesi appeared in filings to have treated their informants like outsourced analysts on their payroll, discussing earnings projections and deal negotiations unknown to the rest of the market.
Plans by Blackstone Group to take hotel chain Hilton private amounted to "a sure thing," a cooperating witness told Mr. Rajaratnam on July 2, 2007, according to court filings, which add that the hedge-fund manager knew he was receiving inside information.
Galleon Technology Funds bought and sold 400,000 Hilton shares based on tips for a profit of about $4 million, according to court filings.
The complaints allege that an analyst for Moody's Investors Service, not named in the filings, received $10,000 in exchange for the tip. A spokesman for Moody's said the credit-rating firm "fully supports the government's prosecution of insider trading and will provide every assistance in its investigation of this matter."
What were described as wiretap snippets suggested audacity but also at times nervousness.
"I swear to you in front of God ... you put me in jail if you talk," Ms. Chiesi told an unnamed alleged co-conspirator on Aug. 27, 2008, the filings say. "I'm dead if this leaks. I really am.... and my career is over. I'll be like Martha f -- ing Stewart.'"
During a call in August 2008, according to the filings, Mr. Rajaratnam and Ms. Chiesi discussed their concerns that their trading would draw regulators' attention. "On Akamai or IBM, anything, be radio silent," Mr. Rajaratnam told her, according to court filings. "I'm radio silent," Ms. Chiesi replied, according to the filings.
The transcripts also showed the two discussing Mr. Moffat, the IBM executive. "Put him in some company where we can trade well," Mr. Rajaratnam was said to tell Ms. Chiesi on a recorded telephone call in September, 2008.
Ms. Chiesi replied, according to the filings: "I know, I know. I'm thinking that too. Or just keep him at IBM, you know, because this guy is giving me more information.... I'd like to keep him at IBM right now because that's a very powerful place for him. For us, too."
Mr. Moffat's lawyer, Kerry Lawrence, said his client was "shocked" by the charges. "We look forward to a favorable resolution of the case." IBM declined to comment.
Charles Clayman, a lawyer for Mr. Kumar, also described his client as shocked, saying: "He is a man of integrity and honesty. He emphatically denies these charges." Mr. Kumar's employer, McKinsey, said: "The firm was distressed to learn that Mr. Kumar has been arrested and is looking into the matter urgently."
A spokesman for Intel, where Mr. Goal works, said he had been "placed on administrative leave as we look into this matter. Intel ... has not been contacted by authorities." A lawyer for Mr. Goel couldn't be reached to comment. Mr. Goel didn't return a call to his home.
Lawyers for Ms. Chiesi and Mr. Kurland declined to comment. Messages for their employer, New Castle, were not returned Friday night. A spokesman for Galleon said it was "shocked" at Mr. Rajaratnam's arrest and intends to cooperate fully, adding: "Galleon continues to operate and is highly liquid."
—Don Clark and Kara Scannell contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com and Chad Bray at chad.bray@dowjones.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
By JENNY STRASBURG and CHAD BRAY
In a case echoing the scandals of the 1980s, federal authorities exposed what they claim is the biggest insider-trading ring in a generation -- a conspiracy in which a hedge-fund kingpin and executives at blue-chip firms including IBM and Intel allegedly connived to profit on Google and other big-name stocks.
At the center was Raj Rajaratnam, founder of Galleon Group, a New York-based fund firm that manages $3.7 billion. A native of Sri Lanka, he spent years carving a reputation as a meticulous investor in technology stocks, building a fortune estimated at $1.5 billion.
Mr. Rajaratnam, 52 years old, was led away from his apartment in New York's Sutton Place neighborhood after a 6 a.m. raid by the Federal Bureau of Investigation.
Hours later, the U.S. Attorney in Manhattan charged him and three others with securities fraud and conspiracy to commit securities fraud, and two others with conspiracy. The Securities and Exchange Commission leveled civil charges of insider trading against all six. Friday night, the judge set $100 million bail for Mr. Rajaratnam and lower bail for the others.
The case casts a spotlight on a financial crime -- insider trading -- with a long history on Wall Street. It is illegal to trade based on corporate information not disseminated to the public. But over the decades, a rogue's gallery of investors has succumbed to that lure.
The crime erupted in an epidemic in the late 1980s, following a surge in takeovers that put armies of bankers and lawyers in possession of market-moving information about merger plans and tactics. At the center was Ivan Boesky, an arbitrageur who cultivated executives and investment bankers, ultimately paying a $100 million penalty for trading on information from a Drexel Burnham Lambert banker. He served 22 months in prison.
Since the 1980s, Wall Street has changed, with hedge funds acquiring power and influence. But the game of gleaning information still relies on cultivating sources in positions to know corporate secrets. Funds employ analysts and investigators to seek an edge in boosting returns and keeping investors on board. Like Mr. Boesky, Mr. Rajaratnam is an outsider who made it big on Wall Street.
The case against him reads like a thriller. An unnamed cooperating witness, described as a onetime Galleon employee, helped spark the investigation, taping conversations with Mr. Rajaratnam. That led to broader wiretaps that capture the bravado of traders looking for an advantage. Prosecutors said the case is the first to use wiretaps for pursuing insider-trading charges.
The others taken into custody and charged were:
Robert Moffat, 53, an executive at International Business Machines Corp. in charge of its supply chain, who recently was also given responsibility for its hardware, server and its semiconductor business -- and has been considered a potential future candidate for CEO.
Rajiv Goel, 51, an executive in the treasury department of Intel Corp., who graduated from the University of Pennsylvania's Wharton School in 1983, the same year as Mr. Rajaratnam.
Anil Kumar, 51, a director at management-consulting firm McKinsey & Co., whom the SEC described as a friend of Rajaratnam and investor in Galleon funds.
Mark Kurland, 60, of New Castle Partners LLC, a stock-trading hedge-fund group started in 1995 at Bear Stearns Asset Management Inc.
Danielle Chiesi, 43, a portfolio manager at New Castle.
The complaints allege the group earned $20 million in improper gains. Messrs. Kurland and Moffat were charged with conspiracy but not with fraud.
Mr. Rajaratnam has recorded average annual returns of 21% for Galleon's biggest fund, soundly beating the S&P-500 index, according to marketing documents. Galleon once oversaw more than $7 billion but shrank last year and faced withdrawals at year end, said a person familiar with it.
Of particular value to funds are insights of executives working directly in an industry, who might provide gossip or "market color." There is nothing inherently wrong with such conversations, but when information is passed that may affect a stock price, traders and executives expose themselves to potential insider-trading allegations.
Jim Walden, a lawyer for Mr. Rajaratnam, said, "He's innocent. We're going to fight the charges."
Earlier Friday, at a bail hearing, Mr. Walden said that the prosecutors' theory in the case was novel, noting they had argued in part that Mr. Rajaratnam encouraged an alleged co-conspirator to leave an email trial in order to help conceal the scheme. He said prosecutors and investigators appeared to have misconstrued terms his client used in his business. "They don't understand the business Mr. Rajaratnam was legitimately employed in," Mr. Walden said.
Relying on phone wiretaps, the criminal complaint described a period from 2006 and 2008 when Mr. Rajaratnam and his group allegedly swapped information that could move a stock. Wiretap transcripts appeared to show Mr. Rajaratnam working closely with Ms. Chiesi, with her serving as a key link between him and a network of contacts.
Excerpts of taped conversations contained in court filings purported to show rapid-fire exchanges of information, and strategies about how best to trade on it. The wiretaps captured the high-pressure world of hedge-fund trading, as the duo discussed how certain information would weigh on coming earnings announcements of IBM, Akamai Technologies Inc. and others.
The transcripts showed Ms. Chiesi talking with Mr. Kurland, quoting him as telling her in August 2008: "Don't put anything in email.... Don't email even Raj."
Mr. Rajaratnam and Ms. Chiesi appeared in filings to have treated their informants like outsourced analysts on their payroll, discussing earnings projections and deal negotiations unknown to the rest of the market.
Plans by Blackstone Group to take hotel chain Hilton private amounted to "a sure thing," a cooperating witness told Mr. Rajaratnam on July 2, 2007, according to court filings, which add that the hedge-fund manager knew he was receiving inside information.
Galleon Technology Funds bought and sold 400,000 Hilton shares based on tips for a profit of about $4 million, according to court filings.
The complaints allege that an analyst for Moody's Investors Service, not named in the filings, received $10,000 in exchange for the tip. A spokesman for Moody's said the credit-rating firm "fully supports the government's prosecution of insider trading and will provide every assistance in its investigation of this matter."
What were described as wiretap snippets suggested audacity but also at times nervousness.
"I swear to you in front of God ... you put me in jail if you talk," Ms. Chiesi told an unnamed alleged co-conspirator on Aug. 27, 2008, the filings say. "I'm dead if this leaks. I really am.... and my career is over. I'll be like Martha f -- ing Stewart.'"
During a call in August 2008, according to the filings, Mr. Rajaratnam and Ms. Chiesi discussed their concerns that their trading would draw regulators' attention. "On Akamai or IBM, anything, be radio silent," Mr. Rajaratnam told her, according to court filings. "I'm radio silent," Ms. Chiesi replied, according to the filings.
The transcripts also showed the two discussing Mr. Moffat, the IBM executive. "Put him in some company where we can trade well," Mr. Rajaratnam was said to tell Ms. Chiesi on a recorded telephone call in September, 2008.
Ms. Chiesi replied, according to the filings: "I know, I know. I'm thinking that too. Or just keep him at IBM, you know, because this guy is giving me more information.... I'd like to keep him at IBM right now because that's a very powerful place for him. For us, too."
Mr. Moffat's lawyer, Kerry Lawrence, said his client was "shocked" by the charges. "We look forward to a favorable resolution of the case." IBM declined to comment.
Charles Clayman, a lawyer for Mr. Kumar, also described his client as shocked, saying: "He is a man of integrity and honesty. He emphatically denies these charges." Mr. Kumar's employer, McKinsey, said: "The firm was distressed to learn that Mr. Kumar has been arrested and is looking into the matter urgently."
A spokesman for Intel, where Mr. Goal works, said he had been "placed on administrative leave as we look into this matter. Intel ... has not been contacted by authorities." A lawyer for Mr. Goel couldn't be reached to comment. Mr. Goel didn't return a call to his home.
Lawyers for Ms. Chiesi and Mr. Kurland declined to comment. Messages for their employer, New Castle, were not returned Friday night. A spokesman for Galleon said it was "shocked" at Mr. Rajaratnam's arrest and intends to cooperate fully, adding: "Galleon continues to operate and is highly liquid."
—Don Clark and Kara Scannell contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com and Chad Bray at chad.bray@dowjones.com更多精彩文章及讨论，请光临枫下论坛 rolia.net