Rengan Rajaratnam, the kid brother of Galleon Group LLC co-founder Raj Rajaratnam, did what no one else in a seven-year crackdown on insider trading has managed: He won acquittal and walked out of court a free man.
Federal jurors in Manhattan deliberated for less than four hours yesterday before concluding that Rajaratnam, 43, a former Galleon portfolio manager, wasn’t guilty of conspiracy. One juror said prosecutors wanted to convict him for his older brother’s crimes.
“There was an element of retrying Raj Rajaratnam instead of Rengan,” Miriam Goderich, 48, a literary agent from Rockland County, New York, said in an interview after the verdict. “It just seemed that the evidence was so underwhelming that you couldn’t convict.”
The verdict was the government’s first trial loss in a wide-ranging probe that has led to 85 convictions of traders, analysts, lawyers and executives, with most sentenced to prison. Raj Rajaratnam, the first to be arrested in October 2009, is serving 11 years.
“Today is the day that Rengan has been waiting for,” his attorney, Daniel Gitner, said after the verdict. “Rengan looks forward to getting on with his life.”
The sweeping investigation of insider trading dating to 2007 is winding down with some stumbles by prosecutors. Most notably, the government failed to bring charges against SAC Capital Advisors LP Steven A. Cohen after years of trying. While the fund pleaded guilty last year and was ordered to pay $1.8 billion, the firm, renamed Point72 Asset Management LP last year, continues to manage Cohen’s family fortune of about $10 billion.
In April, a U.S. appeals panel signaled it may overturn the convictions and order a new trial for two ex-traders who said they were convicted on the basis of flawed jury instructions.
The judges, who have yet to rule, appeared to agree with lawyers for Level Global Investors LP co-founder Anthony Chiasson and ex-Diamondback Capital Management LLC portfolio manager Todd Newman, who said their convictions should be overturned because jurors weren’t required to find that they knew the source of their illegal tips received a personal benefit for the information.
This year, U.S. District Judge Naomi Reice Buchwald issued a series of rulings that prompted the government to whittle down its case against Rengan Rajaratnam, who was charged in a seven-count indictment in March 2013 over claims he made almost $1 million from illegal trades. The judge’s decisions left the jury with only a single conspiracy count involving an alleged illicit gain of about $40,000 to consider.
“While we are disappointed with the verdict on the sole count that the jury was permitted to consider, we respect the jury trial system whatever the outcome,” U.S. Attorney Preet Bharara said in a statement.
Even with yesterday’s acquittal, prosecutors have won significant convictions by using evidence including secret wiretaps on traders’ phone lines, incriminating text messages and e-mails among conspirators, and testimony from wrongdoers who entered into cooperation deals with the government.
Those sentenced to prison included Robert Moffat, an former International Business Machines Corp. (IBM) executive who leaked tips to an analyst at New Castle Funds LLC; Michael Steinberg, who spent 16 years as an SAC portfolio manager; and Rajat Gupta, a former Goldman Sachs Group Inc. (GS) director and McKinsey & Co. managing director who passed information to Raj Rajaratnam.
In January, prosecutors won the conviction of former SAC fund manager Mathew Martoma, who was found guilty of orchestrating a $275 million insider trading scheme, the most lucrative in U.S. history. He’s scheduled to be sentenced July 28.
Rengan Rajaratnam, who worked his way up through SAC Capital until he became a Galleon Group fund manager, was accused of conspiring with his older brother to get nonpublic information in 2008 to trade ahead of deals involving Advanced Micro Devices Inc. (AMD) and Clearwire Corp. He was also charged with securities fraud until the judge dismissed two counts last week.
Prosecutors said Rengan Rajaratnam also conspired with Anil Kumar, then a director at McKinsey & Co., and Danielle Chiesi, a securities analyst.
In one instance cited by prosecutors, Raj Rajaratnam said he got a tip from a business school classmate that Sunnyvale, California-based AMD was getting a multibillion-dollar investment. In a call secretly recorded by the Federal Bureau of Investigation, Rengan was heard in court telling his brother that his ex-classmate “spilled his beans” about the proposed deal.
Jurors rejected the government’s arguments.
In interviews after the verdict, jurors said they agreed with Gitner’s argument that Rengan Rajaratnam didn’t know the source of his brother’s tips or whether the leakers received any benefit. Several jurors on the panel of eight women and four men said Rajaratnam was charged only because he was caught on wiretaps talking to his brother.
Catherine Wolcott, 53, a graphic designer from Manhattan, said Raj Rajaratnam kept his brother in the dark about his crimes and saved his best tips for himself.
“Raj kept the cards to himself and Rengan was like a puppy playing in a field, trying to get his attention,” she said.
Wolcott said the case appeared to be “an afterthought” for prosecutors in comparison to his brother’s.
“The whole feeling of the trial was, ‘Hey, let’s give this a shot,’” she said. She cited the government’s indictment of Rengan on the last day it could do so, a point made by Gitner in his closing argument. “Basically we were all waiting for the government to come up with more of a smoking gun and we were like, really?” she said.
Miriam Green, 69, a retired school teacher, said the government “just did not present a strong enough case,” while the defense “did their homework” and “showed the facts.”
“There wasn’t sufficient evidence,” said Isabel Tirado, 66, the jury forewoman and a history professor at William Paterson University.
Jurors at first were split. Two wanted to return a guilty verdict. Others persuaded them to change their view after listening to the wiretaps and reviewing evidence, Green said. One juror was “a bit of a holdout,” she said.
After yesterday’s verdict, the judge told Rajaratnam he was free to return to Rio de Janeiro, where he moved after his brother’s conviction.
“Go back to Brazil for the finals,” Reice Buchwald said, referring to the World Cup soccer match.
“Absolutely,” he replied, smiling broadly.
Rajaratnam still faces a parallel lawsuit by the U.S. Securities and Exchange Commission, which has alleged he reaped more than $3 million in illegal gains. John Nester, an SEC spokesman, declined to comment yesterday on that case, which was put on hold in December.
The case is U.S. v. Rajaratnam, 13-cr-00211, U.S. District Court, Southern District of New York (Manhattan). The SEC case is Securities and Exchange Commission v. Rajaratnam, 13-cv-01894, U.S. District Court, Southern District of New York (Manhattan).
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