Raj Rajaratnam always looked like he was one step ahead of rival investors, building a multibillion-dollar fortune on the back of well-timed bets on global share prices and turning his hedge fund, Galleon Group, into one of Wall Street's largest and most powerful.
Now we know how he did it: he was the kingpin in a massive conspiracy to harvest secret share tips from corporate informants, building Galleon in part on the profits of insider dealing, a Manhattan jury has found. On nine counts of securities fraud and five of conspiracy to commit fraud, the foreman delivered its verdict to Rajaratnam yesterday: guilty as charged.
For prosecutors, Rajaratnam represents the biggest scalp in a sprawling investigation into insider trading by hedge funds and their managers, and their biggest success against white-collar crime in the investment world since the scandals of the 1980s.
Born in Sri Lanka and educated at the University of Sussex, Rajaratnam had appeared the model Wall Street success, but his hunger for gaining an "edge" over rival investors took him beyond the bounds of the law time and time again. Using secret sources at major technology companies, the management consulting giant McKinsey, and even in the boardroom of Goldman Sachs, Rajaratnam was able to haul in profits that were based not on the quality of his investment thinking but on illegal inside information.
Galleon managed $3.7bn (£2.3bn) at its height, much of it Rajaratnam's own money. He was once so powerful that his arrest in 2009 sent shockwaves around the world. The Colombo stock market suffered its biggest intra-day fall in five years, because Galleon was such a large shareholder in Sri Lanka's biggest companies.
Rajaratnam's lawyers indicated the fight was not over and that they would appeal the verdict. "See you in the Second Circuit," attorney John Dowd declared, as he stormed past reporters.
Their client now faces the prospect of swapping his billionaire lifestyle for a jail term that could stretch to 20 years or more. Last night he remained free on a $100m bail bond, though now with an electronic tag around his ankle. Prosecutors had argued that, with a vast fortune that includes property in Sri Lanka, Singapore and London, Rajaratnam is the classic flight risk.
In the end, the Galleon founder was brought down by the evidence of his own conversations, phone calls he believed were secret but which were in fact being taped by the FBI, using wiretaps for the first time in an insider trading case. Jurors heard Rajaratnam gloating about the information he had obtained on companies including chipmaker AMD and Goldman Sachs.
Among the most incriminating conversations were a series between the Galleon founder and Danielle Chiesi, a former beauty queen turned fund manager at another hedge fund. In one call about forthcoming results from a technology firm, Akamai, Ms Chiesi tells Rajaratnam: "They're going to guide down. I just got a call from my guy. I played him like a finely tuned piano." Rajaratnam in turn appeared to advise Chiesi to "buy and sell, buy and sell" to avoid detection for insider trading.
Rajaratnam's lawyers painted a different picture, of a diligent trader with a voracious appetite for information, who made his trades not on the basis of any single tip but on an assessment of a mosaic of intelligence built up from public sources. This was a man, the court was told, who had six computer screens on his desk and joked with Galleon employees who only had two that he would buy them a third for their birthday.
The wiretapped conversations, they said, provided nothing more than confirmation of rumours, press reports or information that was already public – and any witnesses who said otherwise were lying in the hope of getting a lower sentence for their own crimes.
Some of Rajaratnam's sources have been charged with crimes – including McKinsey's Anil Kumar, a Wharton Business School classmate, who was paid millions of dollars into a Swiss bank account for his tips – and 21 of the 26 charged have entered guilty pleas.
Others have been accused of violations of securities regulations. Rajat Gupta resigned from the Goldman Sachs board and was criticised from the witness box in the Rajaratnam trial when the investment bank's chief executive, Lloyd Blankfein, accused him of violating the company's ethics policies. Mr Gupta is now fighting the Securities and Exchange Commission in an attempt to clear his name.Reuse content