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Rajaratnam’s Questioning of Law May Lead to Tougher Sentence

Raj Rajaratnam
Raj Rajaratnam, co-founder of Galleon Group LLC, exits federal court in New York on May 11, 2011. Photographer: Peter Foley/Bloomberg

Sept. 13 (Bloomberg) -- Galleon Group LLC co-founder Raj Rajaratnam, convicted of directing the biggest-ever hedge fund insider trading scheme, may face a stiffer sentence after telling a court official he still wasn’t “clear” that what he did was wrong.

Rajaratnam, 54, convicted in May of trading on illegal stock tips, later told a court official that he wasn’t “clear” on “the line between permissible ‘detective work’ and impermissible insider trading,” prosecutors said.

After his conviction, Rajaratnam was interviewed by a court probation officer who is writing a memorandum proposing a sentence to the judge. Such interviews are standard in criminal cases. In a legal brief on Sept. 9, prosecutors excerpted some of his comments to the probation officer while telling U.S. District Judge Richard Holwell in New York that they show Rajaratnam “remains defiant.”

Prosecutors told the judge that Rajaratnam’s comments, which are consistent with his unsuccessful trial defense, “reflect a serious disregard for the law” and warrant a severe sentence. Rajaratnam “cannot seriously claim confusion” about the significance of a tip about, for instance, a pending acquisition, prosecutors said.

No Obligation

“The legal line was clear,” prosecutors wrote, adding that Rajaratnam was under no legal obligation to say anything about his acts to the probation officer.

Rajaratnam, 54, was convicted of 14 counts of conspiracy and securities fraud for engaging in a years-long insider-trading scheme. Prosecutors are seeking a sentence of 19 1/2 to 24 1/2 years at his sentencing on Sept. 27. Rajaratnam is seeking leniency, saying that such a sentence is “grotesquely severe.”

“In my own mind, the line between permissible ‘detective work’ and impermissible insider trading was not always clear, especially with regard to companies broadly covered by the news media as to which there was a wealth of publicly available information, including frequent leaks, rumors and speculation about corporate transactions and other important developments,” Rajaratnam told the probation officer, according to prosecutors.

Rajaratnam didn’t testify at the trial and hasn’t spoken publicly about his conviction or the charges against him.

He also told the probation official that no one was harmed by his trades, prosecutors said, excerpting that remark as well.

‘Made Whole’

“I am not aware of anyone who lost money as a result of my actions presented to the jury,” he told the probation official, according to the government. “The trades at issue were made in liquid stocks with market makers. They were not made with individual investors who would have refrained from trading but for my purchases and sales.

“All of Galleon’s investors were made whole after Galleon closed down,” he said.

Prosecutors said the comment shows that Rajaratnam has “absolutely no appreciation” that he “cheated the system.”

Rajaratnam argued in his own brief on Sept. 9 that the government’s requested sentence is more than the average sentence imposed for kidnapping and hostage-taking, sexual abuse, robbery, arson and child pornography.

Kathryn Holmes Johnson, a spokeswoman for Rajaratnam, declined to comment on the prosecutor’s legal brief.

The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

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

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

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