Andrew Gombert/European Pressphoto AgencyRaj Rajaratnam, the former head of the Galleon Group, was found guilty of insider trading earlier this year.
8:30 p.m. | Updated
A federal court has denied Raj Rajaratnam’s request to remain free on bail while he appeals his insider-trading conviction, a ruling that forces the fallen hedge fund manager to report to prison on Monday.
Mr. Rajaratnam, the former head of the hedge fund Galleon Group, is set to serve his 11-year sentence — the longest prison term to date for insider trading — in a federal prison in Ayer, Mass.
In a last-ditch try to keep their client out of jail pending his appeal, his lawyers appeared at the United States Court of Appeals for the Second Circuit in Lower Manhattan on Wednesday. They argued that his case raised substantial questions of law that mandated his release until the appeal was resolved.
In a short order issued Thursday afternoon, the three-judge panel, without explanation, denied Mr. Rajaratnam’s request. During the hearing, the judges had expressed concern that Mr. Rajaratnam was a flight risk and could have an incentive to flee to his native Sri Lanka.
“Wouldn’t he rather be living as a centimillionaire in his own country rather than as a convict in a jail?” Judge Dennis Jacobs asked Patricia A. Millett, a lawyer for Mr. Rajaratnam, at the hearing on Wednesday.
Beginning Monday, Mr. Rajaratnam will be living at the Federal Medical Center Devens in Massachusetts. Mr. Rajaratnam, 54, was assigned there because of his health problems. He has diabetes that could lead to eventual kidney failure, according to medical records submitted to the court.
The Devens prison is located about 200 miles from his luxury apartment on Sutton Place in Manhattan, where he lives with his wife and three children.
Mr. Rajaratnam’s surrender to the Bureau of Prisons is a milestone in the government’s most prominent insider trading prosecution since the 1980s. Federal authorities arrested Mr. Rajaratnam in October 2009, charging him with orchestrating a multiyear insider trading conspiracy involving senior corporate executives, management consultants and other hedge fund managers.
In May, a jury found him guilty of securities fraud and conspiracy. Between the criminal case and a parallel civil proceeding brought by the Securities and Exchange Commission, Mr. Rajaratnam has been ordered to pay about $157 million in fines, the largest penalty assessed so far in an insider trading case.
The pursuit of insider trading by federal prosecutors appears to be continuing unabated. Before year end, the government is expected to bring a new set of insider trading charges against traders at Diamondback Capital Management and Level Global Investors, according to a person with direct knowledge of the case who spoke on the condition of anonymity because he was not authorized to discuss it publicly.
The new cases are based in part on wiretapped conversations between the traders and illegal tipsters, this person said. Dozens of secretly recorded conversations between Mr. Rajaratnam and his accomplices also formed the core of the evidence against him at trial.
They will also form the core of Mr. Rajaratnam’s appeal, which could take as long as a year to resolve. His lawyers will argue that the government improperly obtained judicial authorization to wiretap his telephone, violating the law and Mr. Rajaratnam’s constitutional rights.
Appeals Court Ruling Denying Rajaratnam’s Bid to Stay Free on Bail
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