THE BIGGEST insider dealing case in hedge fund history ended yesterday with Raj Rajaratnam, the Svengali-like boss of Galleon Group, being convicted of fraud and conspiracy.
Rajaratnam now faces up to 19 and a half years behind bars for masterminding a vast conspiracy that traded on illegal information on companies including Google, Intel and Hilton, netting the tycoon tens of millions of dollars.
The ruling brings to an end the most high profile financial prosecution since Bernie Madoff was slapped with a 150 year sentence for his $65bn Ponzi scheme in 2009.
Questions will now be asked about how the compliance systems of some of the world’s biggest financial institutions allowed Rajaratnam’s network of contacts to access its treasure-trove of confidential information.
High profile figures from Goldman Sachs, McKinsey and Moody’s all featured in the sprawling case, which spanned nine months and included a wealth of secretly recorded wiretap evidence. Former McKinsey director Anil Kumar pleaded guilty to passing inside information to Rajaratnam in exchange for about $2m (£1.2m).
Rajat Gupta, a former Goldman Sachs director who also went on to work for McKinsey, was last week accused by the SEC of passing on confidential information when he was a director at the bank. He denies the claims. Deep Shah, a lowly junior analyst at Moody’s who is now on the run, stands accused of tipping yet another Rajaratnam mole.
Rajaratnam’s conviction marks an incredible fall from grace for a man once seen as one of the brightest stars on Wall Street, whose Galleon fund managed more than $7bn in assets.
In the end, the Sri Lankan-born investor, who says he will appeal, was undone by his own hubris. The government covertly recorded discussions in which he bragged about the size and accuracy of his network of sources.
Robert Falkner, financial services litigation partner at Reed Smith, told City A.M. this case is especially significant because of the sheer scale of Rajaratnam’s operation. He said: “Often in these cases you find one or two rogue individuals. But this is a professional who has operated a business largely based around access to price sensitive information that had been obtained inappropriately.
“This makes it stand out from other cases. It is an area that, to date, prosecutors have not been very successful in, despite widespread suspicions that some insider trading is going on.”
He added: “The Financial Services Authority would love to nail a case like this in the UK.”