Ex-Galleon Executive Settles SEC Suit for $1.75 Million

Kris Chellam, a former Galleon Group LLC executive, agreed to pay $1.75 million to settle U.S. Securities and Exchange Commission claims that he passed inside information to Raj Rajaratnam, the hedge-fund’s co-founder.

Chellam, 61, of Saratoga, California, shared information with Rajaratnam in December 2006 indicating that chipmaker Xilinx Inc. wouldn’t meet its revenue forecasts, the SEC said today in a statement. Rajaratnam shorted Xilinx stock and reaped illicit profits of $978,684 after the news was made public.

When he passed the tip, Chellam had money invested with Galleon and was in talks with Rajaratnam about taking a job at the hedge fund, the SEC said. Galleon hired him in May 2007, the SEC said. Rajaratnam is serving an 11-year sentence in a Massachusetts federal prison after being convicted last year of insider trading. Chellam hasn’t been charged with a crime.

“Chellam tipped Rajaratnam not only because the two were good friends, but also because Chellam had a substantial investment in Galleon, including in one of the funds that profited from the tips Chellam provided about Xilinx,” the SEC alleged in a civil complaint filed today in Manhattan federal court.

Christopher Steskal, a lawyer for Chellam, didn’t immediately return a call seeking comment about the complaint. The settlement requires court approval.

Former CFO

Chellam served as chief financial officer at Xilinx from 1998 to 2005, the SEC said. In 2007, he was made co-managing partner of the Galleon Special Opportunities Fund, a venture capital fund that focused on technology companies.

After he joined Galleon, Chellam continued to obtain material nonpublic information about San Jose, California-based Xilinx, the SEC said in the complaint. He passed what he learned to his Galleon colleagues until he left the firm in April 2009, according to the SEC.

Chellam now works as an independent consultant to closely held technology companies, the SEC said.

At Rajaratnam’s criminal trial, jurors heard a government wiretap of a May 2, 2008, phone conversation during which Rajaratnam gave Chellam and another Galleon executive, Krish Panu, what he called “confidential” news about a transaction involving chipmaker Spansion Inc.

On the recording, Rajaratnam can be heard saying they should hide their knowledge of the deal by asking a Galleon analyst to do research.

“We just have an e-mail trail,” he said, according to the intercepted recording. The jury also saw tax returns showing that Chellam invested in Galleon before joining the firm.

The case is SEC v. Chellam, 12-cv-7983, U.S. District court, Southern District of New York (Manhattan).

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