Rajaratnam Found Guilty Of Insider-Trading

May 11 2011 | 11:05am ET

Galleon Group founder Raj Rajaratnam was convicted of insider-trading today in one of the most closely-watched Wall Street trials in history.

The jury of eight men and four women found Rajaratnam guilty of all counts, nine of securities fraud and five of conspiracy to commit securities fraud, after a nine-week trial, including two-and-a-half of deliberations. Prosecutors convinced the panel that Rajaratnam ran an insider-trading ring for seven years that netted him and Galleon $63.8 million.

The one-time billionaire will be sentenced on July 29. While each securities fraud count carries a 20-year maximum, prosecutors said today that he'll face between 15½ and 19½ years in prison.

Rajaratnam, who had been free on $100 million bail since his arrest on Oct. 16, 2009, was allowed to remain so pending sentencing, although he'll now be subject to electronic monitoring and house arrest. His lawyer said he would appeal the verdict, specifying that he would attack the judge's decision to permit the use of wiretaps in the trial.

"There is a Franks issue that remains a very serious issue that we will take up on appeal," Dowd said, referring to the Franks hearing in October after which U.S. District Judge Richard Holwell ruled the wiretaps admissible.

Rajaratnam's case was the first pure insider-trading case that employed wiretaps: The Federal Bureau of Investigation taped tens of thousands of calls during the investigation, 45 of which were used during the trial. Jurors reheard 30 of those tapes during their deliberations, which had to restart a week ago after Holwell dismissed a juror for medical reasons.

Prosecutors systematically went through Rajaratnam's allegedly illegal trades, and heard from several former employees and tipsters who pleaded guilty in the case. The government even called Goldman Sachs CEO Lloyd Blankfein to the stand to testify that information that Rajaratnam alleged received from Rajat Gupta, the former head of McKinsey & Co. and a former Goldman board member, was confidential and privileged.

The defense, for its part, hammered away at the credibility of the government's star witnesses and tried to show that Rajaratnam was only doing his job while drumming up information, none of which was material and confidential, as defined by the insider-trading statutes.

Rajaratnam is the 22nd person convicted in the case; the previous 21, including several of the people who testified against him and several others heard on the wiretaps, pleaded guilty. Three others are to stand trial next week, including the alleged head of the second of two interlocking insider-trading rings in the case, former Galleon trader Zvi Goffer. One of the indicted remains a fugitive from justice and is believed to be in his native India.

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