Rengan Rajaratnam, the younger brother of imprisoned hedge-fund founder Raj Rajaratnam whose trial on insider-trading charges is scheduled for June, said U.S. prosecutors are trying to hold him responsible for trades that they pinned on his brother at his trial.
Rengan Rajaratnam is accused of conspiring with his brother, the Galleon Group LLC co-founder who’s serving an 11-year prison sentence, to trade on material nonpublic information about Clearwire Corp. and Advanced Micro Devices Inc. (AMD)
Rengan Rajaratnam claims the government is accusing him of executing Galleon trades on March 24 and March 25 in 2008, after presenting evidence to the jury in his brother’s 2011 trial that it was Raj Rajaratnam alone who bought Clearwire shares on those two days using inside information.
The office of Manhattan U.S. Attorney Preet Bharara has filed insider-trading charges against 83 people and four entities in its investigation of fund managers, company insiders and expert-networking firms. Prosecutors have won 79 convictions, mostly through guilty pleas. On Feb. 6, former SAC Capital Advisors LP fund manager Mathew Martoma was found guilty by a jury in what prosecutors called the most lucrative insider-trading scheme ever.
Prosecutors alleged that Rengan Rajaratnam, while working as a fund manager at Galleon Group, made almost $1.2 million from trades that occurred in 2008 based on tips provided by his brother and his Rolodex of insiders. He was implicated during his brother’s trial, where wiretapped conversations between the two men were played in court.
Rajaratnam, who has pleaded not guilty to conspiracy and securities fraud, said in a court filing yesterday that the judge should throw out two counts in his indictment that are “repugnant” because they are based on inconsistent claims against him and his brother.
“The government’s choice simultaneously to allege that Raj ‘caused’ these purchases and that Rengan caused them, too, appears to be strategic,” Rajaratnam’s lawyers said in the filing in Manhattan federal court. “The government claimed during the Raj trial that Raj was the final tippee, meaning he was the one who bought the 261,800 CLWR shares. Now, the government alleges that Rengan is the final tippee who bought those 261,800 CLWR shares.”
Rajaratnam also argued that the entire indictment should be dismissed because it fails to allege he knew he was violating insider-trading laws.
“As a remote tippee, Rengan was permitted to trade on confidential information unless he knew that an insider had disclosed the information for personal gain,” his attorney, Daniel Gitner, wrote in the filing.
Gitner said the wiretap recordings of the Rajaratnam brothers should be kept out of evidence at his client’s trial, citing the same arguments about constitutional protections against illegal searches that Raj Rajaratnam unsuccessfully made before his trial.
A parallel insider-trading lawsuit filed by the U.S. Securities and Exchange Commission against Rengan Rajaratnam described a conspiracy that allegedly began in 2006 and lasted until 2008. He reaped more than $3 million in illicit gains for Galleon and his proprietary account, the SEC alleged. That case is on hold until the criminal trial concludes.
Rengan Rajaratnam co-founded Sedna Capital Management LLC, a hedge fund advisory firm, after leaving SAC Capital, where he worked as an analyst from May 2003 to January 2004.
The criminal case is U.S. v. Rajaratnam, 13-cr-00211, U.S. District Court, Southern District of New York (Manhattan); the civil case is SEC v. Rajaratnam, 13-cv-01894, Southern District of New York (Manhattan).
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