Billionaire hedge fund founder Raj Rajaratnam and executives from some of the most prestigious US companies were charged last night with the largest hedge fund insider-trading scheme ever.
Investigators said they used court-approved telephone wire taps for the first time in a Wall Street insider trading case, sending shivers through the hedge fund industry which has traditionally picked up and shared trading tips to make big profits.
At the centre of the case are Mr Rajaratnam, his Galleon hedge fund and two executives from hedge fund New Castle, which was a unit of Bear Stearns Asset Management before Bears Stearns Cos collapsed in 2008, but is still in operation.
Three executives from major American companies IBM, top consulting firm McKinsey & Co and the venture capital arm of chip giant Intel Corp are also facing criminal charges.
"This is not a garden-variety insider trading case," Preet Bharara, the US Attorney for Manhattan, said at a news conference. He said the scheme made more than $20 million in illegal profits over several years.
One of the criminal complaints accuses Mr Rajaratnam (52) considered the richest Sri Lankan in the world, of conspiring with Intel Capital treasury department managing director Rajiv Goel and Anil Kumar, a director of McKinsey & Co. The alleged offenses took place over three years starting in January 2006.
Galleon had as much as $7 billion under management, the complaint said.
Early yesterday evening, a US magistrate judge in New York said Mr Rajaratnam may be released on a $100 million personal recognizance bond secured by $20 million in cash and property.
In a brief appearance, Mr Rajaratnam sat in court with his arms folded. The judge restricted his travel to a radius of 110 miles from Manhattan and Mr Rajaratnam, a citizen of both Sri Lanka and the United States, surrendered travel documents.
A prosecutor argued that Mr Rajaratnam was a flight risk, but his lawyer Jim Walden said: "A court's going to learn there's a lot more to this case. There is no way that this man is going to flee."
A second criminal complaint accused three other people - New Castle portfolio manager Danielle Chiesi, New Castle general partner Mark Kurland and Robert Moffat, a senior vice president in the IBM technology group - of insider trading crimes and earning millions of dollars in illegal profits.
Reuters