Rengan Rajaratnam said to be in custody on insider charges

SEC Suit

Kelly Langmesser, a spokeswoman for the FBI, declined to comment on the arrest. The U.S. Securities and Exchange Commission also filed a parallel insider-trading suit against Rengan Rajaratnam, describing a conspiracy that the agency said began in 2006 and lasted until 2008. Rajaratnam reaped more than $3 million in illicit gains for Galleon and his own firm, Sedna Capital Management LLC, the SEC alleged. The SEC said its investigation is continuing.

Rengan Rajaratnam was named in a federal indictment, unsealed last week, charging him with one count of conspiracy to commit securities fraud and six counts of securities fraud. Conspiracy carries a maximum five-year prison sentence, while fraud carries a 20-year maximum.

The criminal case was assigned last week to U.S. District Judge Naomi Reice Buchwald while the SEC case was assigned to U.S. District Judge John Koeltl.

David Tobin, an attorney for Rengan Rajaratnam, said in an e-mailed statement today that his client returned voluntarily after seeing press reports of his indictment.

“Rajaratnam immediately volunteered to return from Brazil, where he had been living and working for the past year, in order to defend himself,” said Tobin. Rajaratnam denied the charges.

SAC Capital

Rengan Rajaratnam co-founded Sedna, a hedge fund advisory firm, after leaving SAC Capital Advisors LP where he worked as an analyst from May 2003 to January 2004.

A graduate of the University of Pennsylvania and Stanford University’s business school, he has also worked at Morgan Stanley. The SEC alleged that after Rengan Rajaratnam closed down Sedna he worked for as a portfolio manager at Galleon from 2007 to 2009 when the fund closed after his brother’s arrest on insider-trading charges.

Raj Rajaratnam, 55, is serving an 11-year prison sentence after being convicted in 2011 on 14 counts of conspiracy and securities fraud in the largest crackdown on hedge fund insider trading. Dozens of people have been convicted as part of the probe being handled by the Federal Bureau of Investigation in New York and Bharara’s office.

‘Career Arc’

“Rengan Rajaratnam’s career arc paralleled his brother’s,” FBI Assistant Director George Venizelos said in a statement. “He followed in Raj’s footsteps by obtaining an MBA from a top-flight business school. He went to work for Raj at Galleon. As alleged in the indictment, Rengan also engaged in the same illegal conduct as Raj.”

Rengan Rajaratnam took illicit tips from his brother and traded on AMD, Clearwire, Polycom Inc., Hilton Hotels Corp. and Akamai Technologies Inc., regulators said.

The indictment quoted from telephone calls that were secretly recorded by federal agents and played during Raj Rajaratnam’s 2011 trial. That case was the first to make extensive use of wiretaps, a tactic used in organized-crime investigations. At Raj Rajaratnam’s trial, jurors heard more than 40 recordings of him in which the fund manager can be heard gathering secret tips from his sources.

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