Colombo stock market plunges following New York arrests

Repercussions from Galleon insider dealing charges felt from US to Asia
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The Independent Online

Fallout from the arrest of the hedge fund billionaire Raj Rajaratnam in New York last week has reached the Sri Lankan stock exchange, which suffered its biggest intra-day drop in five years when trading began yesterday morning.

Mr Rajaratnam's Galleon Group, and the Sri Lankan-born investor personally, are among the largest holders of shares listed on the Colombo stock exchange, and his arrest on insider dealing charges sparked fears that he could be forced to liquidate his holdings.

The billionaire was yesterday insisting that he will clear his name and save his fund, while lawyers said the case promises to be an important test of how far hedge funds can go in trying to get an edge over their competitors.

Galleon grew into one of the most active and powerful hedge funds on Wall Street because its traders aggressively sought information on companies that they could turn into a bet on their future share price moves.

Now, the FBI and securities regulators say that Galleon went over the line, time and time again, by trading on inside tips illegally gleaned from a network of contacts at technology companies and consulting firms. Mr Rajaratnam and five others were slapped with civil and criminal charges last Friday.

Insiders at the Securities and Exchange Commission say this will not be the last of its clampdowns on alleged insider trading, but to date it is the biggest.

Galleon is alleged to have made profits of $20m from illegal trades in technology shares, including Intel and Google. Yesterday, IBM said it had suspended Robert Moffat, a senior vice-president who was considered a top candidate to succeed the chief executive, Sam Palmisano. Mr Moffat was among those arrested, accused of passing inside information about a deal with the chip maker Advanced Micro Devices.

Mr Rajaratnam, 52, was born in Colombo, attended the University of Sussex in the UK, and obtained an MBA from the Wharton business school in the US. He came to prominence as a technology analyst on Wall Street before setting up Galleon in 1997. The firm now manages $3.7bn of assets, and Forbes magazine estimates Mr Rajaratnam's personal wealth at $1.3bn.

He has concentrated much of his investment and his philanthropic effort in his home region, including setting up a charitable foundation that helped Aids sufferers in India and supported Sri Lankan victims of the 2004 tsunami. It also donated $400,000 to the Tamils Rehabilitation Organisation, a Maryland group whose assets were later frozen by the US authorities, who accused it of being a front for the Tamil Tigers.