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Sri Lankan billionaire and Galleon Management founder Raj Rajaratnam held in hedge funds scam- vast insider trading

By Caroline Mittermair for CEOWORLD Magazine Updated:October 19, 2009

The arrest by U.S. authorities on Friday of Sri Lanka-born Raj Rajaratnam, founder and head of the New York-based Galleon Management hedge fund, on charges of “vast insider trading” has triggered alarm bells in the government and business circles of Sri Lanka.

Mr. Rajaratnam’s firm has a stake in all of the 10 top listed Sri Lankan companies. The island nation’s nearly $10 billion stock exchange is rated as being among the world’s best performing markets.

Observers here are of the view that the “scam” could have an adverse impact on Sri Lanka’s stock market and the economy which is showing signs of recovery after the military defeat of the LTTE in May.

Two Indian Americans identified as Anil Kumar and Rajiv Goel were also arrested on Friday, said Preet Bharara, the US Attorney for the Southern District of New York.

Rajaratnam, has been accused of conspiring with Intel Capital treasury department managing director Rajiv Goel and Anil Kumar, a director of McKinsey & Co. The alleged offenses took place over three years starting in January 2006.

Kumar allegedly profited from investments in Galleon, the $7-billion hedge fund founded by Rajararatnam. Goel is alleged to have received profitable trades in a personal account managed by Rajaratnam, the complaints said.

Investigators said they used court-approved telephone wire taps for the first time in a Wall Street insider trading case, sending shivers through the hedge fund industry which has traditionally picked up and shared trading tips to make big profits.

A second criminal complaint accused three other people — New Castle portfolio manager Danielle Chiesi, New Castle general partner Mark Kurland and Robert Moffat, a senior vice president in IBM — of insider trading crimes and earning millions of dollars in illegal profits. New Castle is a hedge fund which was a unit of Bear Stearns Asset Management before Bears Stearns collapsed in 2008, but is still in operation.

Meanwhile, the Wall Street Journal reported that Rajaratnam was among several wealthy Sri Lankans in US whose donations to a Maryland-based charity made their way to the Tamil Tigers.

Rajaratnam’s attorney Jim Walden said his client was innocent and would fight the insider-trading charges, the Journal said.

He also said the Tamil-origin billionaire had made charitable donations “to rebuild homes” destroyed by the devastating tsunami of 2004, but had no links to LTTE, it said.

The Journal’s report said that in a separate case, federal agents have alleged that money donated to a US charity called Tamil Rehabilitation Organization, or TRO USA, of Cumberland, Maryland, was funneled to the Tamil Tigers. The donors have not been charged with knowing that the money was being sent to the LTTE. The case was brought against Karunakaran Kandasamy, described by prosecutors as the head of the US branch of the LTTE.

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