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US court finds hedge fund founder guilty
Raj Rajaratnam found guilty of 14 securities fraud and conspiracy charges by federal court in New York.
Last Modified: 11 May 2011 18:06

Rajaratnam, 53, faces up to 20 years in prison after being convicted in a major inside trading case [AFP]

Raj Rajaratnam, the founder of Galleon Group hedge fund, has been found guilty of 14 securities fraud and conspiracy charges by a federal court in New York City, marking a watershed victory for the US government's newly aggressive prosecution of insider trading.

Rajaratnam will remain free on bail under house arrest with electronic surveillance until his sentencing on July 29, US District Judge Richard Holwell ruled after the jury delivered its verdict on Wednesday. He faces around two decades in prison.

The Sri Lankan-born Rajaratnam, the central figure in what the government has described as the biggest ever probe of hedge fund insider trading, sat expressionless between his lawyers while a court official read the verdict.

His chief lawyer, John Dowd, said that he would appeal the prosecution's use of secretly-recorded phone calls. After a four-day mini-trial called a Franks hearing last October, the judge denied defence efforts to suppress the phone tap evidence.

Wiretaps

Prosecutors made effective use of FBI wiretaps that recorded Rajaratnam talking to those the government alleged had given him illegal tips.

One of those alleged tipsters, Rajat Gupta, was a former board member at the powerful bank Goldman Sachs. Gupta alerted Rajaratnam to an impending $5 billion investment in Goldman Sachs at the height of the global financial crisis in September 2008, prosecutors said.

Rajaratnam's trial began on March 8, five months after his arrest at his Manhattan apartment, and the jury deliberated 12 days before delivering its verdict. Rajaratnam did not testify in his own defence.

Under the law, Rajaratnam could face up to 25 years in prison, but prosecutors said they would seek 19 and a half.

US Attorney Preet Bharara, the chief federal prosecutor for Manhattan, noted in a statement that Rajaratnam is one of 35 people to be convicted of insider trading in the district in the past 18 months. Twelve other people have been charged.

Many legal experts said the FBI phone taps and testimony of three former friends and associates of Rajaratnam made the prosecution's case particularly strong.

Defence lawyers had stuck consistently to their main theme that Rajaratnam's trades were guided by a trove of research and public information, not secrets leaked by highly-placed corporate insiders.

Litigation experts said the phone taps strengthened insider trading charges, which historically have been difficult to prove because they rely on circumstantial evidence.

"Wiretaps are a game changer on Wall Street," said Chicago securities lawyer Andrew Stoltmann. "That is the reason Raj Rajaratnam will spend a very long time in prison."

Rajaratnam is the only one out of 26 people charged in the broad Galleon case to go on trial so far. Twenty-one pleaded guilty and one defendant is at large. A second trial of three former securities traders is scheduled to start on Monday.

Source:
Agencies
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