Rajaratnam's Brother May Face Insider-Trading Charges

Mar 21 2013 | 7:41am ET

Federal prosecutors are poised to charge Galleon Group Raj Rajaratnam's younger brother with insider-trading as soon as next week.

Rajarengan Rajaratnam, known as Rengan, has not previously been charged with wrongdoing, although he was identified as an unindicted co-conspirator at his brother's trial two years ago, which resulted in Raj Rajaratnam's conviction and sentencing to 11 years in prison.

During Raj's trial, prosecutor Reed Brodsky told the jury that there was "great evidence that Rengan was involved in the conspiracy to go out and get inside information, and actually got inside information or exchanged inside information with the defendant, and then he trade[d] base on it."

Prosecutors in Manhattan are now working to make good on that claim, preparing a sealed indictment against Rengan. They are working against statute-of-limitations deadlines that will begin to pass as soon as the end of next week. The last of the allegations will hit the five-year limit by the end of the year—the wiretaps central to Raj's conviction were made between March and December 2008.

If Rengan is charged, the U.S. will have to seek his extradition: He currently lives in Brazil.

In recent weeks, prosecutors have sought to interview witnesses and cooperators from Raj's trial, The Wall Street Journal reports, while the Securities and Exchange Commission has subpoenaed Rengan's trading records at Galleon.

Next week's deadline could be especially crucial, as meeting it would allow prosecutors to charge Rengan with illegally trading Clearwire Corp. shares in advance of a deal with Intel Inc. His brother was convicted of insider-trading in Clearwire shares, and Rengan earned $236,000 in profits on the same trade, prosecutors say, and spoke with his brother when news of the Intel deal broke.

"Oh dude, we're fucked," Rengan said on a wiretapped call. "It just hit The Wall Street Journal. I don't know how much you got in today, but I think it's going to rip tomorrow."

At Raj's trial, the defense team said that Rengan had done legitimate research on the stock during a trip to Washington, D.C.

The U.S. Attorney's Office in Manhattan is also looking at Rengan's trading in Starent Networks Corp. and Akamai Technologies.

Investigators have actually been looking at Rengan for longer than Raj. Indeed, the probe that led to his brother's downfall began as a 2006 Securities and Exchange Commission probe into Rengan's hedge fund, Sedna Capital Management, which he founded after eight months at SAC Capital Advisors. It was during that investigation that incriminating messages between the two brothers was found. Raj blames Rengan for his travails, the Journal reports.

After closing Sedna at the end of 2006, Rengan joined Galleon.

During Raj's trial, a former Galleon trader, Adam Smith, testified that Galleon's head trader had put 330,000 Starent shares into his portfolio on Rengan's orders, calling it Rengan's "high-conviction stock" just before Cisco Systems announced it was buying the company. Smith said he was instructed not to ask why.

Smith also told the jury in Raj's trial that Rengan removed his brother's notebooks from Raj's office at Galleon on the day Raj was arrested.

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