Raj Rajaratnam

Rajaratnam is an ethnic Sri Lankan Tamil born in Colombo in what was then the Dominion of Ceylon (present-day Sri Lanka). His wealthy father, J. M. Rajaratnam, was the head of the Singer Sewing Machine Co. in South Asia.[10] He attended S. Thomas' Preparatory School, Kollupitiya before his family migrated to England.[11][12] Rajaratnam's family emigrated to England in 1971, concerned that the post-independence Sri Lankan ethnic violence against the Tamils would get more violent.[13] He attended Dulwich College in London[14] and later studied engineering at the University of Sussex, and then earned an M.B.A. from the Wharton School of the University of Pennsylvania in 1983.[10]

Rajaratnam started his career as a lending officer at Chase Manhattan Bank where he specialized in business loans to technology companies. He joined the investment banking boutique Needham & Co. as an analyst in 1985, where he focused on the consumer electronics industry. He rapidly rose through the ranks, becoming the head of research in 1987 and the president in 1991, at the age of 34.[15] At the company's behest, he started a hedge fund—the Needham Emerging Growth Partnership—in March 1992, which he later bought and renamed Galleon Group.

His hedge fund was valued at $3.7 billion in 2009, down from a peak of $7 billion in 2008. According to a 2009 investor letter his $1.2 billion Diversified Fund had a net annualized return of 22.3 percent.[15] Rajaratnam has been featured among the elite US money managers in a book called The New Investment Superstars. Initially, he primarily invested in technology and healthcare companies. He said that his best ideas came from frequent visits with the companies in which he invested and from conversations with executives who invested in his fund.[16]

After Rajaratnam's arrest, Galleon received requests from its investors for the withdrawal of $1.3 billion, which caused the fund to close.[17] In a letter dated October 21, 2009, Rajaratnam informed his employees and investors that he intended to wind down all the funds of the Galleon Group. Investors received the full balance of their initial investments, plus profits, in January 2010.[18]

In November 2009, Rajaratnam pledged to donate $1 million to help with the rehabilitation of the LTTE combatants.[19] He donated to clear land mines in the war-affected areas in Sri Lanka. He recalled his visits to the mine-impacted areas of Sri Lanka and underscored the humanitarian toll that mines have taken. Recalling his encounter with a young child in Kilinochchi who had lost both legs to a land mine, Rajaratnam stated that this particular image that is etched in his memory "made it an easy decision to write the check."[20] He helped Sri Lankans recover after the 2004 tsunami.[21] Rajaratnam was also a contributor to various causes that promoted development in the Indian subcontinent and programs that benefited low income South Asian youth in the New York area.

According to the Federal Election Commission, Rajaratnam has made over $118,000 in political contributions in five years.[22] He contributed to the Democratic National Committee and various campaigns on behalf of Barack Obama, Hillary Clinton, Charles Schumer, and Robert Menendez.[22]

Additional context at Raj Rajaratnam/Galleon Group, Anil Kumar, and Rajat Gupta insider trading cases

Wikimedia Commons has media related to Rajaratnam wiretapped conversation.

On Friday October 16, 2009, Raj Rajaratnam was arrested by the FBI for insider trading in the stock of several publicly traded companies. U.S. Attorney Preet Bharara put the total profits in the scheme at over $60 million, telling a news conference that it was the largest hedge fund insider trading case in United States history.[5][28] Jim Walden, an attorney for Rajaratnam, said his client is innocent and would fight the insider-trading charges.[29]

Rajaratnam profited from information received from:

• Robert Moffat, a senior executive of IBM, considered next in line to be CEO.[30]
• Anil Kumar, a senior executive of McKinsey & Company, and close friend of Rajat Gupta (its former managing director) who was later also convicted of passing information to Rajaratnam.
• Rajiv Goel, a midlevel Intel Capital executive.
• Roomy Khan, previously convicted of wire fraud for providing inside information from her employer, Intel, to Rajaratnam.[31]

It was reported that Rajaratnam, Goel, and Kumar were all part of the class of 1983 from Wharton business school.[32]

The Sri Lankan stock market fell sharply after Rajaratnam was arrested on insider trading charges in October 2009.[33] Sri Lanka's Securities and Exchange Commission is reviewing the active stock trading of Raj Rajaratnam with a view of identifying any insider trading.[34]

Rajaratnam also conspired to get confidential information on the $5 billion purchase by Warren Buffett's Berkshire Hathaway of Goldman preferred stock prior to the September 2008 public announcement of that transaction. The Wall Street Journal reported that a former member of the board of directors of Goldman Sachs and former McKinsey & Company chief executive Rajat Gupta told Rajaratnam about Berkshire's investment before it became public.[35] Gupta stood to profit as would-be chairman of Galleon International, a co-founder of New Silk Route with Rajaratnam, and as a friend of Rajaratnam. In March 2011 Gupta was charged in an administrative proceeding by the SEC. Gupta maintained his innocence, counter-sued, and won dismissal of the administrative charge, but was then arrested on criminal charges.

On May 11, 2011, Rajaratnam was found guilty on all 14 counts of conspiracy and securities fraud.[36] On October 13, 2011, Rajaratnam was sentenced to 11 years in prison by Judge Richard Holwell.[37] To date, this was the longest prison sentence ever handed out for insider trading.[38] The thirteen other defendants connected to Rajaratnam's case received prison sentences averaging approximately three years each.[38]

Rajaratnam served the first years of his 11-year sentence in Ayer, Massachusetts.[39] His appeal to the United States Court of Appeals for the Second Circuit was argued in October 2012 by Patricia Millett, who subsequently became a federal Court of Appeals judge herself on the United States Court of Appeals for the District of Columbia Circuit on December 10, 2013.[40]

U.S. District Judge Loretta Preska in Manhattan on March 3, 2017, rejected Rajaratnam's bid to void much of his insider trading conviction and shorten his 11-year prison sentence, on account of Rajaratnam failing to show his actual innocence on five of the 14 counts on which he was convicted, or that two other counts should be vacated because the main government witness committed perjury. Preska also rejected Rajaratnam's argument that his trial counsel was ineffective, and denied Rajaratnam's bid to reduce the $53.8 million he agreed to forfeit to about $4.3 million.

Prosecutors said Rajaratnam made up to $63.8 million from 2003 to 2009 through insider trading in stocks such as eBay, Goldman Sachs, and Google. Rajaratnam was convicted in May 2011 on nine counts of securities fraud and five counts of conspiracy. He has served 8 years in prison and is eligible for release in July 2021.

• SEC v. Rajaratnam
• Chip Skowron, hedge fund portfolio manager convicted of insider trading
• Mathew Martoma, hedge fund trader and portfolio manager convicted of insider trading