Billionaire Arrested for Insider Trading
Asher Hawkins and Duncan Greenberg, 10.16.09, 05:35 PM EDT
Hedge fund tycoon Raj Rajaratnam is one of six charged with running a scheme that netted at least $20 million in illicit gains.
A billionaire hedge fund manager was one of six arrested this morning by the FBI on charges of running an insider trading scheme that generated at least $20 million in ill-gotten gains.
Raj Rajaratnam, who runs hedge fund outfit Galleon Group and recently ranked 236th on the Forbes list of the 400 richest Americans with a net worth of $1.5 billion, and his fellow conspirators allegedly used leaked corporate secrets to make profitable bets on blue-chip tech stocks like Google ( GOOG – news – people ) and IBM ( IBM – news – people ).
Also charged by Preet Bharara, the U.S. Attorney for the Southern District of New York, were high-level employees at IBM, consulting firm McKinsey & Co., Intel’s ( INTC – news – people ) investment arm and a hedge fund group that had been run out of Bear Stearns.
According to court papers, the McKinsey employee arrested, Anil Kumar, was “a direct or indirect investor in one or more hedge funds affiliated with Galleon.” Kumar allegedly obtained inside information about McKinsey clients, which he then fed to Rajaratnam.
On Aug. 15, 2008, according to prosecutors, Kumar indicated to Rajaratnam that a deal involving Advanced Micro Devices ( AMD – news – people ) was about to close, and advised him to “now just buy” the stock. Galleon traders soon snatched up shares of AMD.
Prosecutors also allege that in July 2007, Rajaratnam was tipped off by an unnamed cooperating witness who had learned from a Moody’s analyst that Blackstone was preparing to buy Hilton Hotels. The information, which came less than two days before the deal was announced, prompted Galleon traders to quickly buy hundreds of thousands of shares of Hilton. The firm’s profits from the trades: $4 million.