Rajaratnam Brother Charged With Insider-Trading

Mar 22 2013 | 2:32am ET

Raj Rajaratnam's brother has been charged with insider-trading, two years after the Galleon Group founder's conviction for the same crime.

Rajarengan Rajaratnam, known as Rengan, was hit with allegations that he and his brother conspired to trade on confidential information about two technology stocks, earning them nearly $1.2 million in illicit profits in 2008. Rengan was also sued today by the Securities and Exchange Commission.

"Along with his brother, Rengan Rajaratnam was allegedly at the heart of an insider-trading scheme that swept up an unprecedented number of people in its web of corruption," Preet Bharara, the Manhattan U.S. Attorney, said.

"Rengan Rajaratnam and his brother shared more than DNA. They also share a penchant for insider-trading."

The Federal Bureau of Investigation's George Venizelos added that Rengan "reaped the benefit of insider information obtained by Raj and he planned to reciprocate by cultivating his own source of inside information. Now Rengan's career arc has descended to the same places his brother's did less than four years ago: defendant."

Prosecutors faced a series of statute-of-limitation-driven deadlines to charge Rengan, beginning next week. Rengan currently lives in Brazil; it is unclear whether he will return to the U.S. to face the charges or whether the U.S. will have to seek his extradition.

A federal grand jury in New York today returned a seven-count indictment against Rengan, for conspiracy and securities fraud. He faces over 100 years in prison if convicted of all counts.

Raj Rajaratnam is currently serving an 11-year prison sentence.

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."

Rengan did not testify at his brother's trial, but his voice was heard on a number of the wiretaps at the heart of the case. In one conversation, in which prosecutors say he was referring to their trades in Clearwire Corp. in advance of a deal with Intel Inc., Rengan is heard to say, "Oh dude, we're fucked. 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.

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.

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

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