Nov. 5 (Bloomberg) -- Federal prosecutors told a U.S. judge they have “more than one” witness ready to testify against Raj Rajaratnam, the Galleon Group hedge fund founder accused of directing an elaborate insider-trading ring.

The government made its disclosure yesterday in court papers in New York opposing Rajaratnam’s request for reduced bail.

“The weight of the evidence against the defendant is overwhelming,” assistant U.S. attorneys Joshua Klein and Jonathan Streeter wrote. “This case involves wiretap evidence of the defendant making incriminating statements and would be strong even absent the testimony of any cooperating witness. In addition, there is more than one cooperating witness.”

A lawyer for the U.S. Securities and Exchange Commission said at a separate court hearing in Manhattan that more defendants may be added to the agency’s civil lawsuit against Galleon and Rajaratnam. SEC lawyer Valerie Szczepanik told U.S. District Judge Jed Rakoff that the agency may sue others in the case.

The SEC alleges that there was “widespread and repeated insider trading” at hedge funds run by Galleon and New Castle Funds LLC, a former Bear Stearns Cos. hedge fund. The scheme generated more than $25 million in illegal proceeds from trading involving about 10 companies including Google Inc., Intel Corp. and Hilton Hotels Corp., the SEC alleges.

Rakoff scheduled the SEC case for trial on Aug. 2 unless “extraordinary circumstances” call for a delay.

Client Redemptions

Galleon said in a letter to clients yesterday that it plans to return most of their money “shortly after” Nov. 30.

Galleon’s hedge funds are mostly in cash after selling stocks and other assets, according to the letter. The New York- based firm, which managed $3.7 billion last month, initially planned to return money to investors by Jan. 1.

Dan Gagnier, a Galleon spokesman, declined to comment.

In the criminal case against Rajaratnam and five others, the government said that a woman identified as one of the witnesses aiding the government, Roomy Khan, was previously convicted of leaking inside information to Galleon about Intel, where she worked.

Rajaratnam, who was released from custody the night of his arrest, and his co-defendants are accused in what prosecutors said is the largest hedge fund insider-trading ring ever charged. Prosecutors say he received tips from a network of high-ranking executives including co-defendants Rajiv Goel, who worked at Intel Capital, and Anil Kumar, who worked as a director at McKinsey & Co. All deny wrongdoing.

After Rajaratnam’s Oct. 16 arrest, prosecutors said he might flee to his native Sri Lanka and asked that he be imprisoned until trial.

Bail Set

A judge set bail at $100 million and required it to be secured by $20 million in cash and property. Rajaratnam posted $2.5 million cash and a Manhattan apartment valued at $17.5 million.

A judge in Manhattan federal court will hear arguments today on the billionaire’s request that his bail be cut to $25 million. Defense attorney John Dowd said in a letter last week that Rajaratnam intends to clear his name and won’t flee.

Dowd said his client needs permission to travel within the U.S. to meet with lawyers and sell his company. He assailed the government’s case as one relying “heavily on a single cooperating witness,” a reference to Khan.

Klein and Streeter yesterday repeated arguments from the prior bail hearing that Rajaratnam is “a grave risk of flight.” They said he faces a lengthy prison term, cite what they said is strong evidence against him, and describe “extensive overseas ties” that give him an opportunity to leave the U.S.

Vast Resources

“The defendant is reported to be the world’s 559th-richest person,” the prosecutors said. “The resources at the defendant’s disposal are vast. The defendant’s enormous wealth, coupled with his international ties, substantially heighten the risk that he will flee.”

The liquidation of Galleon means Rajaratnam will have less incentive to remain in New York, they said.

Yesterday’s filing is the first time prosecutors have identified Khan. It’s unclear from the brief whether they were confirming her as a U.S. witness or merely repeating what press accounts have said. The prosecutors did confirm that Khan was convicted of insider trading for leaking tips to Galleon about Intel.

Government Wiretaps

Dowd yesterday asked U.S. Magistrate Judge Theodore Katz to order prosecutors to turn over immediately the government’s court request for wiretaps. The law requires the government to surrender such material before relying on recorded conversations in court, he said, asking that prosecutors be barred from referring to the wiretaps in today’s bail arguments.

The criminal case is U.S. v. Rajaratnam, 1:09-mj-02306, and the SEC case is SEC v. Galleon Management LP, 09-cv-08811, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Glovin in New York federal court at dglovin@bloomberg.net.

Last Updated: November 5, 2009 00:01 EST