Accused of insider trading, Raj Rajaratnam has tangled with SEC before

October 16, 2009  

This is not the first time the Galleon chief has been in the hot seat.

Federal prosecutors have charged Galleon Group founder Raj Rajaratnam and six others with perpetrating a $20 million insider trading scheme. This latest news is part of a longer string of obstacles faced by Rajaratnam, who has had prior run-ins with the law, as described in Galleon's travels, AR's August 2008 profile of the firm, portions of which are reprinted below. That story is now free to nonsubscribers for a limited time.

Most notably, in May 2005, Galleon agreed to pay the bulk of a $2.4 million fine to settle charges made by the SEC. The regulator claimed Galleon, Oaktree Capital Management and DB Investment Managers had engaged in illegal short selling. All three firms settled without admitting or denying the charges, but Galleon paid the biggest fine: $2.02 million. The SEC alleged Galleon made illegal gains of more than $1 million in defiance of anti-manipulation regulations by illegally covering short sales with securities purchased in follow-on offerings The trades were made on 17 offerings from 2000 to 2003. Galleon settled yet another lawsuit last year. A former female employee accused the firm of sexual discrimination and breach of contract over compensation.

Litigation isn't uncommon at hedge funds, but the number and variety of allegations against Galleon add fodder to the claims of some that Rajaratnam is a difficult and arrogant man. "One incident, and there's no cause for concern. But once you get a couple, you think, 'where there's smoke, there's fire,'" says a former investor. Following Sud's departure, "there were a lot of moving parts, teams changing, new initiatives and poor performance," says another former investor. The same comment holds true today. The issue is whether Rajaratnam will once again be able to transform his firm.

More news on Galleon and Rajaratnam:

Galleon's Deutsch resurfaces (Sep 28, 2009)
Todd Deutsch launches a long-short trading fund.

Galleon's travels
(Aug 26, 2008)
Raj Rajaratnam has steered his ship through rough seas before. But the departure of a senior partner, the closure of a big fund and losses at his two main funds are leading him into uncharted waters as he opens Asian macro and private equity funds. Can he admiral an entire fleet?

Good-bye, Rainmaker
(Jul, 1 2008)
June is Todd Deutsch's last month at the Galleon Group. Deutsch's departure seems to be a watershed moment for Galleon, which in trying to establish itself as a more institutional player is adopting an approach that may be at odds with Deutsch's more aggressive trading style.

Best-Paid Hedge Fund Managers
(Apr, 15 2008)

Ship of Dreams
(September 12, 2006)
Galleon founder Raj Rajaratnam is rebuilding lives in his native Sri Lanka - one house at a time.

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