Prosecutors are readying insider trading charges against Rajarengan Rajaratnam, a younger brother of the imprisoned hedge fund manager Raj Rajaratnam, according to a person briefed on the case.
During Mr. Rajaratnam’s trial in 2011, Rajarengan Rajaratnam, who worked for his brother at the Galleon Group hedge fund, was heard speaking on several wiretaps of incriminating conversations that were played for the jury. Prosecutors identified him as an unindicted co-conspirator in the case.
Charges could be filed in the next month, this person said. There is an urgency to bringing an indictment against Rajarengan Rajaratnam, who goes by Rengan, because the five-year deadline for bringing securities fraud charges on certain trades is set to pass in the coming weeks.
He now lives in Brazil. If prosecutors charge him, they would have to use extradition laws to return him to the United States.
David C. Tobin, a lawyer for Rengan Rajaratnam, did not immediately return a request for comment. A spokeswoman for the United States attorney’s office declined to comment. News of a possible indictment against Rengan Rajaratnam was reported earlier by The Wall Street Journal
Though he was a much smaller player on Wall Street than his billionaire older brother, Rengan Rajaratnam is seen a seminal figure in the government’s broad inquiry into insider trading at hedge funds.
The origins of the investigation, which has led to more than 75 prosecutions of hedge fund employees and corporate executives, stretch back more than a decade. But a crucial breakthrough came in 2006 during an inquiry into Sedna Capital, a fund run by Rengan Rajaratnam. While reviewing e-mails and instant messages, securities regulators discovered damning communications between Rengan and his brother.
A graduate of the University of Pennsylvania and Stanford University’s business school, Rengan Rajaratnam did brief stints early in his career at Morgan Stanley and, for eight months, at the hedge fund SAC Capital Advisors. Prosecutors are investigating illegal trading at SAC, and have brought criminal charges against several former SAC traders. Steven A. Cohen, the founder of SAC, has not been charged with any wrongdoing.
Rengan Rajaratnam started Sedna in 2004. By mid-2006, Sedna was a small fund managing about $80 million. But its uncanny timing on several trades was brought to the government’s attention by an executive at the Swiss bank UBS, which provided services to Sedna.
In December 2006, lawyers at the Securities and Exchange Commission took Rengan Rajaratnam’s deposition. Sedna closed around that same time, and he joined his brother at Galleon.
Jurors at Raj Rajaratnam’s trial heard Rengan Rajaratnam on several calls, including one from August 2008, during which he told his brother about his efforts to press a friend, a consultant at McKinsey Company, for confidential information. Rengan Rajaratnam called the consultant “a little dirty” and boasted that he “finally spilled his beans” by sharing secrets about a corporate client.
Another former Galleon employee, Adam Smith, also testified that the day of Raj Rajaratnam’s arrest in October 2009, Rengan Rajaratnam took his brother’s notebooks from an office at Galleon.
Raj and Rengan Rajaratnam have another brother, Ragakanthan, who goes by R.K. and also worked at Galleon. R.K.’s name emerged during testimony at the trial of Rajat K. Gupta, a former Goldman Sachs director found guilty last year of passing the bank’s secrets to Raj Rajaratnam. Mr. Gupta is appealing his conviction.
R.K. Rajaratnam has not been charged with any crimes. Raj Rajaratnam is serving the second year of an 11-year sentence at a federal prison in Ayer, Mass.
Article source: http://dealbook.nytimes.com/2013/03/21/prosecutors-weigh-insider-trading-charges-against-raj-rajaratnams-brother/?partner=rss&emc=rss
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