Rajaratnam Silent in Tax-Shelter Deposition, Lawyer Says

Galleon Group LLC co-founder Raj Rajaratnam declined to answer any questions during a deposition at the federal prison where he’s serving an 11-year sentence for securities fraud and conspiracy, a lawyer said.

Rajaratnam, convicted last year of directing the largest hedge fund insider-trading scheme in U.S. history, was interviewed yesterday for about an hour and 45 minutes at the Federal Medical Center Devens in Ayers, Massachusetts. The deposition stems from a case involving a tax shelter Rajaratnam had invested in. He isn’t a defendant in the lawsuit.

He refused to answer any of the more than 100 questions he was asked, invoking his right against self-incrimination under the U.S. Constitution’s Fifth Amendment, said Howard Kleinhendler, an attorney representing the plaintiffs.

“He looked good,” Kleinhendler, of Wachtel Masyr & Missry LLP in New York, said today in a phone interview, adding that Rajaratnam appeared to have lost weight since the last time he saw him, in 2007. Rajaratnam, 55, has said in court papers that he has health problems including diabetes and will probably need dialysis and a kidney transplant.

“He was in good spirits,” Kleinhendler said.

Court Order

New York state Supreme Court Justice Eileen Bransten in March ordered Rajaratnam to answer questions from Diversified Group, a tax-shelter promoter, as part of the 2010 lawsuit. Samidh Guha, a lawyer representing Rajaratnam, had opposed the request, saying his client would invoke his right against self- incrimination.

Guha, of Akin Gump Strauss Hauer & Feld LLP in New York, declined to comment on the deposition.

Rajaratnam and his wife, Asha, along with Galleon Group co- founder Gary Rosenbach and his wife, Susan, sued Diversified in 2005, saying they were tricked into investing in an illegal tax shelter. They sought to recover at least $15 million in interest, penalties and fees that Rajaratnam and Rosenbach paid to the U.S. Internal Revenue Service. They didn’t seek to recover the taxes.

Rajaratnam and Rosenbach won a 2009 arbitrator’s decision against Diversified and its president for $5.8 million, according to court records. Diversified and its founder were found to have committed fraud in the marketing, promotion and implementation of the tax shelter.

In 2010, Diversified sued a tax attorney and three consulting firms over the structuring of the shelter, the case for which Rajaratnam was deposed.

Bransten also granted an unopposed request from Diversified’s lawyers to question Rosenbach, who lives in Vail, Colorado. Rosenbach will be deposed next month in New York, Kleinhendler said.

The case is Diversified Group Inc. v. Marcum & Kleigman LLP, 450286/2010, New York State Supreme Court (Manhattan).

To contact the reporters on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net; Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net