US Legal Newswire – Manhattan US Attorney Charged Hedge Fund Managers, Fortune 500 Directors and Others in Insider Trading Case

LawFuel.com – American Law Newswire Service –
PREET BHARARA, the United States Attorney for the
Southern District of New York, and JOSEPH DEMAREST, JR.,
Assistant Director-in-Charge of the New York Office of the
Federal Bureau of Investigation (“FBI”), today announced charges
against six individuals arising out of their alleged involvement
in the largest hedge fund insider trading case in history. The
defendants include: RAJ RAJARATNAM, the Managing Member of
Galleon Management, LLC (“Galleon”), and a portfolio manager for
Galleon Technology Offshore, Ltd.; DANIELLE CHIESI, an employee
of New Castle Funds, LLC (“New Castle”), formerly the equity
hedge fund group of Bear Stearns Asset Management, Inc.; MARK
KURLAND, a top executive at New Castle; RAJIV GOEL, a Director in
Strategic Investments at Intel Capital, the investment arm of
Intel Corporation (“Intel”); ANIL KUMAR, a Director at McKinsey &
Company, Inc. (“McKinsey”), a global management consulting firm;
and ROBERT MOFFAT, Senior Vice President and Group Executive at
International Business Machines Corporation (“IBM”). All are
charged with participating in insider trading schemes that
together netted more than $20 million in illegal profits. This
case represents the first time that court-authorized wiretaps
have been used to target significant insider trading on Wall
Street.

All of the defendants were arrested this morning by
agents of the FBI. RAJARATNAM, KUMAR, and CHIESI were arrested
in New York, New York; KURLAND was arrested in Mt. Kisko, New
York; and GOEL was arrested in San Jose, California. MOFFAT
surrendered this morning to the FBI in White Plains, New York.
RAJARATNAM, CHIESI, KURLAND, KUMAR, and MOFFAT will be presented
in Manhattan federal court later today before United States
Magistrate Judge DOUGLAS F. EATON. GOEL will be presented today
in federal court in San Jose, California.

According to the two Complaints unsealed today in
Manhattan federal court:

RAJARATNAM, KURLAND, CHIESI, and others repeatedly
traded on material, nonpublic information given as tips by
insiders and others at hedge funds, public companies, and
investor relations firms — including Intel, IBM, McKinsey,
Moody’s Investors Services Inc. (“Moody’s”), Market Street
Partners, Akamai Technologies, Inc. (“Akamai”) and Polycom, Inc.
(“Polycom”). As a result of their insider trading, RAJARATNAM,
CHIESI, KURLAND and others earned millions of dollars of illegal
profits for themselves and the hedge funds with which they were
affiliated. One of the insiders, KUMAR, profited from
investments in Galleon. GOEL, also an insider, received
profitable trades in a personal account managed by RAJARATNAM.
Telephone conversations between RAJARATNAM and CHIESI,
intercepted based on court-authorized wiretaps of phones, as well
as consensually recorded conversations with an individual who
subsequently became a cooperating government witness (the “CW”),
revealed that RAJARATNAM, KURLAND, CHIESI and the CW routinely
received inside information directly or indirectly from insiders
and provided it to each other for the purpose of trading based on
the information. The material, nonpublic information pertained
to upcoming earnings forecasts, mergers, acquisitions, or other
business combinations (the “Inside Information”).

The Insider Trading Schemes
Charged In The Rajaratnam Complaint
RAJARATNAM engaged in overlapping schemes with the CW,
KUMAR, GOEL, and CHIESI (identified in the Rajaratnam Complaint
as “CC-1”) to trade on the basis of Inside Information in several
publicly traded companies. Specifically, these individuals
engaged in insider trading in Polycom, Hilton Hotels Corp.
(“Hilton”), Google Inc. (“Google”), Clearwire Corporation
(“Clearwire”), Akamai, Advanced Micro Devices (“AMD”), and People
Support, Inc. (“People Support”).
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From approximately January 2006 until around July 2007,
RAJARATNAM and others engaged in schemes to trade on the basis of
Inside Information pertaining to Polycom, Hilton, and Google.
RAJARATNAM obtained Inside Information relating to these
companies from the CW who, in turn, obtained this information
from various inside sources. Those sources included an insider
at Polycom, a source at Moody’s who provided Inside Information
pertaining to Hilton, and a source at Market Street Partners who
provided Inside information pertaining to Google. Based on
trading related to information about these entities, RAJARATNAM
caused Galleon to earn a total profit of more than $12.7 million.
In exchange for the Inside Information RAJARATNAM received from
the CW, RAJARATNAM provided the CW with Inside Information on a
number of companies.
For example, the CW learned from a Moody’s analyst, on
July 2, 2007, that Hilton was going to be taken private. The CW
then informed RAJARATNAM of this fact, telling him that it was a
“sure thing.” Based on this information, RAJARATNAM caused
Galleon to purchase hundreds of thousands of shares of Hilton
stock, reaping total profits of approximately $4 million.
From approximately March 2008 until around October
2008, RAJARATNAM and GOEL engaged in insider trading schemes
involving the stock of Clearwire. GOEL obtained Inside
Information regarding investments in Clearwire made by his
employer in Spring 2008, and provided it to RAJARATNAM in
violation of duties of trust and confidence he owed to Intel.
RAJARATNAM caused Galleon to trade on the basis of this Inside
Information, earning a total profit of approximately $579,000.
In exchange for the Inside Information RAJARATNAM received from
GOEL, RAJARATNAM placed profitable trades for the benefit of GOEL
in a personal brokerage account maintained by GOEL at Charles
Schwab.
From approximately July 2008 until around October 2008,
RAJARATNAM, CHIESI, and others engaged in insider trading based
on Inside Information pertaining to Akamai and AMD. For example,
on July 24, 2008, CHIESI provided RAJATARAM with non-public
information pertaining to Akamai which is further described in
the Chiesi Complaint.
From approximately August 2008 until around October
2008, RAJARATNAM, KUMAR, and others engaged in insider trading
based on Inside Information pertaining to AMD. KUMAR obtained
Inside Information regarding certain of McKinsey’s clients,
including AMD, and communicated it to RAJARATNAM in violation of
duties of trust and confidence KUMAR owed to McKinsey and its
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clients. For example, on August 15, 2008, KUMAR told RAJARATNAM
that the parties to a deal involving AMD had “shaken hands,” and
that RAJARATNAM could “now just buy” AMD stock. RAJARATNAM then
shared this information with CHIESI. On September 11, 2008,
KUMAR told RAJARATNAM that the deal involving AMD was “gonna be
October, first week.” RAJARATNAM caused the Galleon Technology
Funds to trade on the basis of this Inside Information, and KUMAR
stood to benefit because he was a direct or indirect investor in
one or more hedge funds affiliated with Galleon.
The Insider Trading Schemes
Charged In The Chiesi Complaint
KURLAND, MOFFAT, and CHIESI engaged in overlapping
schemes to commit insider trading. Specifically, CHIESI obtained
inside information from MOFFAT, RAJARATNAM, and an executive at
Akamai on several publicly traded companies, including IBM, Sun
Microsystems, AMD, and Akamai. CHIESI in turn shared that
information with KURLAND, and both CHIESI and KURLAND then traded
on that information in the accounts of their hedge fund, New
Castle. In addition, CHIESI shared much of that inside
information with RAJARATNAM and received inside information from
RAJARATNAM in return.
For example, in July 2008, during a telephone call that
was intercepted by the FBI, CHIESI told RAJARATNAM, after
speaking to the Akamai executive, “Akamai…. I’m trading it
tomorrow…. They’re gonna guide down. I just got a call from
my guy…. I was talking about the family and everything, and
then he said people think it’s gonna go to 25 [dollars per
share]. They print on Wednesday.” RAJARATNAM said, “you got a
few more days. Friday, Monday….” CHIESI said, “Just keep
shorting every day. We got a lot of days….”
In the following days, CHIESI caused New Castle to sell
short shares of Akamai. On July 30, 2008, Akamai announced its
quarterly earnings, providing guidance for the following quarter
that was weaker than securities analysts’ expectations. Later
that day, during another telephone call intercepted by the FBI,
RAJARATNAM thanked CHIESI for the information she had provided.
On July 31, 2008, New Castle covered the short positions in
Akamai stock and earned a profit of more than $2.4 million.
During other calls intercepted by the FBI, KURLAND, and
CHIESI also discussed CHIESI’s sources of information at Akamai
and IBM. For example, on September 2, 2008, CHIESI and KURLAND
discussed whether to sell short more shares of Akamai stock.
CHIESI asked, “Do you want me to call [the Akamai Executive] up?
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It’s a pretty [expletive] scary thing to do.” KURLAND replied,
“Call him…. Let him talk.” On October 10, 2008, during
another intercepted call, the Akamai Executive said, “Danielle, I
have a major present for you.” CHIESI asked what he was talking
about, and the Akamai Executive replied, “Information.” CHIESI
said, “Well that, that is a great present.”
During other calls intercepted by the FBI, CHIESI
obtained non-public information concerning AMD from MOFFAT and
RAJARATNAM, and shared that information with KURLAND. For
example, in August 2008, CHIESI and MOFFAT were discussing a
confidential business transaction that AMD was then negotiating
with investors from Abu Dhabi. MOFFAT had access to inside
information concerning this deal because as part of the
transaction, IBM would be granting a license to an entity to be
spun off by AMD. Toward the end of the call, CHIESI asked about
the timing of the deal involving AMD, and MOFFAT replied, “six to
eight weeks from my meeting.” When asked the chances that the
deal would fall through, MOFFAT replied, “Zero…, I see no way
that it doesn’t get done.” MOFFAT also said that IBM had
“already signed” the agreement.
On August 27, 2008, CHIESI called a co-conspirator (the
“CC”) to provide information regarding the AMD reorganization.
CHIESI said, “You just gotta trust me on this. Here’s how scared
I am about what I’m gonna tell you on AMD.” The CC asked when
the announcement would take place, and CHIESI replied,
“September.” CHIESI said, “I swear to you in front of God…
You put me in jail if you talk.” Later, CHIESI said, “I’m dead
if this leaks. I really am… and my career is over. I’ll be
like Martha [expletive] Stewart.”
Similarly, CHIESI obtained inside information from
MOFFAT concerning IBM and Sun Microsystems and shared that
information with KURLAND. New Castle subsequently traded on that
information. For example, in early 2009, New Castle gained
profits of approximately $500,000 from trades in IBM securities
and $900,000 from trades in Sun Microsystems securities based on
material non-public information.
* * *
RAJ RAJARATNAM, 52, resides in New York, New York.
ANIL KUMAR, 51, resides in Santa Clara, California.
RAJIV GOEL, 51, resides in Los Altos, California.
DANIELLE CHIESI, 43, resides in New York, New York.
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ROBERT MOFFAT, 53, resides in Ridgefield, Connecticut.
MARK KURLAND, 60, resides in New York, New York.
* * *
Mr. BHARARA praised the work of the FBI and thanked the
SEC for its assistance in the investigation. Mr. BHARARA also
noted that the investigation is continuing.
United States Attorney BHARARA said: “Today, we take
decisive action against fraud on Wall Street. This case should
be a wake up call for Wall Street. It should be a wake up call
for every hedge fund manager and every Wall Street trader and
every corporate executive who is even thinking about engaging in
insider trading. As the defendants in this case have now learned
the hard way, they may have been privy to a lot of confidential
corporate information, but there was one secret they did not
know: we were listening. Today, tomorrow, next week, the week
after, privileged Wall Street insiders who are considering
breaking the law will have to ask themselves one important
question: Is law enforcement listening?”
Assistant Director-in-Charge DEMAREST said: “Make no
mistake — the $20 million dollars in illicit profits come at the
expense of the average public investor. Where knowledgeable
businessmen are unscrupulous and act without control, the result
is unadulterated greed. The FBI’s role in combating white collar
crime is to ensure integrity in the marketplace, to protect the
average investor, and by extension, the economy.”
This case is being supervised by the Office’s
Securities and Commodities Fraud Task Force. Assistant United
States Attorneys JOSH KLEIN and JONATHAN STREETER and Special
Assistant United States Attorney ANDREW MICHAELSON are in charge
of the prosecutions.
The charges contained in the Complaints are merely
accusations, and the defendants are presumed innocent unless and
until proven guilty.
09-335 ###
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United States v. Raj Rajaratnam, et al. (09 Mag. 2306)
COUNT CHARGE DEFENDANT MAXIMUM POTENTIAL
PENALTIES
One Conspiracy
to Commit
Securities
Fraud
RAJ RAJARATNAM 5 years; $250,000 or
twice the gross gain
or loss
Two Conspiracy
to Commit
Securities
Fraud
RAJ RAJARATNAM
RAJIV GOEL
5 years; $250,000 or
twice the gross gain
or loss
Three Conspiracy
to Commit
Securities
Fraud
RAJ RAJARATNAM 5 years; $250,000 or
twice the gross gain
or loss
Four Conspiracy
to Commit
Securities
Fraud
RAJ RAJARATNAM
ANIL KUMAR
5 years; $250,000 or
twice the gross gain
or loss
Five Securities
Fraud
RAJ RAJARATNAM
RAJIV GOEL
20 years; $5 million
or twice the gross
gain or loss
Six Securities
Fraud
RAJ RAJARATNAM
RAJIV GOEL
20 years; $5 million
or twice the gross
gain or loss
Seven Securities
Fraud
RAJ RAJARATNAM 20 years; $5 million
or twice the gross
gain or loss
Eight Securities
Fraud
RAJ RAJARATNAM 20 years; $5 million
or twice the gross
gain or loss
Nine Securities
Fraud
RAJ RAJARATNAM 20 years; $5 million
or twice the gross
gain or loss
Ten Securities
Fraud
RAJ RAJARATNAM
ANIL KUMAR
20 years; $5 million
or twice the gross
gain or loss
Eleven Securities
Fraud
RAJ RAJARATNAM
ANIL KUMAR
20 years; $5 million
or twice the gross
gain or loss
-8-
Twelve Securities
Fraud
RAJ RAJARATNAM
ANIL KUMAR
20 years; $5 million
or twice the gross
gain or loss
Thirteen Securities
Fraud
RAJ RAJARATNAM 20 years; $5 million
or twice the gross
gain or loss
United States v. Danielle Chiesi, et al. (09 Mag. 2307)
COUNT CHARGE DEFENDANT MAXIMUM POTENTIAL
PENALTIES
One Conspiracy
to Commit
Securities
Fraud
DANIELLE CHIESI
MARK KURLAND
5 years; $250,000 or
twice the gross gain
or loss
Two Conspiracy
to Commit
Securities
Fraud
DANIELLE CHIESI
ROBERT MOFFAT
5 years; $250,000 or
twice the gross gain
or loss
Three Conspiracy
to Commit
Securities
Fraud
DANIELLE CHIESI 5 years; $250,000 or
twice the gross gain
or loss
Four Securities
Fraud
DANIELLE CHIESI 20 years; $5 million
or twice the gross
gain or loss
Five Securities
Fraud
DANIELLE CHIESI 20 years; $5 million
or twice the gross
gain or loss
Six Securities
Fraud
DANIELLE CHIESI 20 years; $5 million
or twice the gross
gain or loss

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