During a 2010 pretrial hearing in Raj Rajaratnam’s case, prosecutors and regulators said they were first drawn to focus on insider trading by Rengan Rajaratnam in 2006.
An earlier investigation by the SEC and U.S. prosecutors in San Francisco in 1999 had only resulted in the prosecution of former Intel employee Roomy Khan. She pleaded guilty in April 2001 to wire fraud and agreed to cooperate with the U.S.
Andrew Michaelson, one of the principal SEC lawyers investigating Galleon in the later probe testified that in September 2006 the agency opened an insider-trading investigation focusing on Galleon because Raj and Rengan Rajaratnam “appeared to be exchanging nonpublic information.”
Michaelson, who would later be a prosecutor in the Raj Rajaratnam case, said the SEC questioned Sedna and Galleon employees under oath, reviewed millions of pages of documents and looked at every one of Rengan Rajaratnam’s e-mails and instant messages for 2006. Soon regulators had another target: Raj Rajaratnam, Rengan’s older brother, he said.
Prosecutors said that after they “hit a wall” in the criminal investigation of Raj Rajaratnam, they decided to employ court-authorized wiretaps against the fund manager.
The recordings would eventually also ensnare Rajat Gupta, the former Goldman Sachs Group Inc. director who was caught on wiretapped calls talking to Rajaratnam.
Gupta, 64, also sat on the board of Cincinnati-based Procter & Gamble Co. and ran the consulting firm McKinsey & Co. from 1994 to 2003. He was convicted in June of passing insider tips to Rajaratnam in a conspiracy that ran from 2007 to January 2009.
Gupta, who was sentenced to two years in prison, is free pending his appeal.
The SEC said last week that it has sued 33 defendants in its Galleon-related enforcement actions, with insider-trading reaping more than $96 million in illicit profits by trading in stock of more than 15 companies.
The criminal case is U.S. v. Rajaratnam, 13-cr-00211, U.S. District Court, Southern District of New York (Manhattan); the civil case is SEC v. Regan Rajaratnam, 13-cv-01894, Southern District of New York (Manhattan).