A jury has found Galleon Group founder Raj Rajaratnam guilty on fourteen counts of securities fraud and conspiracy, in one of the government’s biggest-ever insider trading case. He faces up to nineteen-and-a-half years in prison and was given an electronic monitor and ordered to home detention. Prosecutors argued that he was a flight risk because he has the financial means to leave the country and owns property in Sri Lanka and Singapore.
The verdict is big win for Wall Street sheriff Preet Bahara and his campaign to make up for the government missing Bernie Madoff — and letting the banks off easy for the financial crisis — by rounding up insider traders like they were Tony Soprano. The government used 45 wiretapped phone calls to show how Rajaratnam used Machiavellian tactics and wiles of an ex-beauty queen to wheedle insider tips from contacts at powerful firms, including Goldman Sachs, Intel, IBM, and Bear Sterns.
All told, the feds estimated Galleon’s illegal profits and avoided losses amounted to $63.8 million, a relatively small amount compared to the $7 billion in assets Rajaratnam managed at the hedge fund’s peak. But it was enough to put him alongside Bernard Ebbers of WorldCom and Jeffrey Skilling of Enron as the most successful corporate prosecutions in the past decade. Rajaratnam remained calm as the verdict was read in the packed courtroom, just as he had when witnesses, including former employees and best friends, testified against him.
Some hedge-funders, perhaps wishfully, thought the jury was going to be hung based on repeated requests for the evidence as they went through the charges. Due to a medical emergency, an alternate had to be subbed in, restarting deliberations from scratch. Wall Street better start investing in some burners. Looks like Preet just got a big affirmative that treating crooked traders like they’re mobsters pays off.
Galleon’s Rajaratnam Found Guilty [Dealbook]
Jury Convicts Galleon Founder Rajaratnam [WSJ]
RAJ RAJARATNAM VERDICT: GUILTY ON ALL 14 COUNTS [BI]
Earlier: What We’ve Learned About Wall Street From Watching the Raj Rajaratnam Trial
Update: Mere hours after the verdict, the FBI is already playing Let’s Make a Plea. Fox Business Network correspondent Charlie Gasparino says the FBI sees “the Raj verdict as a starting point for plea deals in the future.” Now that the feds have their big win for the public, a plea would spare them cost of a trial. In return hedge funders won’t have to think about getting shivved for insider trades that amount to a fraction of their net worth. Good luck trying to use this strategy against SAC Captial’s Steve Cohen. If they ever find evidence to bring charges against him, we’d love to hear his response.