Morgan Stanley Managing Director Kamal Ahmed is “cooperating” with the bank’s investigation of allegations raised in a U.S. court filing that an employee helped pass information in the Galleon Group LLC hedge fund insider trading scandal, Ahmed’s lawyer said.
Douglas Tween, a lawyer at Baker & McKenzie LLP in New York who represents Ahmed, said today in a phone interview that he is “confident that when the investigation is completed, and all the facts are gathered, it will be shown that he did nothing illegal or unethical.”
Raj Rajaratnam, the founder of Galleon Group, is charged with five counts of conspiracy to commit securities fraud and nine counts of securities fraud. He’s the central figure in an insider-trading probe in which more than 20 people have been criminally charged. Rajaratnam has pleaded not guilty and is scheduled to go to trial Feb. 28.
Prosecutors filed a superseding indictment dated Jan. 20 against Rajaratnam that added a new securities-fraud count and provided additional details about stocks he is alleged to have traded illegally. A Morgan Stanley banker, whose name was redacted in the court filing, was accused of passing information on Advanced Micro Devices Inc.’s purchase of ATI Technologies Inc.
“In or about May 2006, [redacted], a banker with Morgan Stanley, provided [redacted] with information regarding AMD’s acquisition of ATI,” according to the letter, signed by Assistant U.S. Attorney Jonathan Streeter. “[Redacted] provided this information to Rajaratnam.”
$2.5 Billion Loan
Bloomberg data shows that Morgan Stanley acted as an adviser to AMD on the ATI acquisition. The bank also provided a $2.5 billion loan to finance the deal.
If allegations in the Jan. 21 filing in Manhattan federal court prove “to be true, the alleged conduct would be a violation of Morgan Stanley’s values and policies,” Pen Pendleton, a bank spokesman, said today in a phone interview. “We have placed the banker on leave and are fully cooperating with the government’s investigation.”
The Wall Street Journal reported yesterday that the banker in the court filing is Ahmed.
The prosecutors’ letter was filed as an attachment to papers filed by Rajaratnam asking U.S. District Judge Richard Holwell, who is presiding over his criminal case, to block a document subpoena prosecutors are trying to issue to Galleon Management LP. Prosecutors on Jan. 13 asked Holwell for permission to serve the subpoena, according to Rajaratnam’s motion.
Morgan Stanley isn’t the only Wall Street bank to be drawn into the Rajaratnam case. As of April, Rajat Gupta, then a member of the Goldman Sachs Group Inc. board, was under examination by the U.S. Securities and Exchange Commission as part of the case, according to a person familiar with the Galleon investigation who asked not to identified.
Gupta hasn’t been accused of wrongdoing. His lawyer, Gary Naftalis, has said that Gupta’s “record of ethical conduct” is “beyond reproach.”
In addition to using tips about the 2006 ATI acquisition, Rajaratnam traded on tips about AMD’s plan to spin off two plants in 2008, prosecutors said.
Prosecutors claimed that Danielle Chiesi, Rajaratnam’s former codefendant who pleaded guilty to insider trading charges last week, received inside tips from an unidentified AMD executive, later identified by a person familiar with the investigation as Hector Ruiz, the company’s former chief executive officer.
Former McKinsey & Co. director Anil Kumar, who pleaded guilty in January 2010, admitted to leaking tips to Rajaratnam, including information about AMD’s spinoff and the ATI acquisition.
The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).