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Rajaratnam Agrees to Pay $1.5 Million to Settle SEC Case

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Galleon Group LLC co-founder Raj Rajaratnam
Raj Rajaratnam, the Galleon Group LLC co-founder agreed to pay $1.3 million representing profits gained and losses avoided as a result of the conduct the SEC alleged in the case, according to a filing yesterday in federal court in New York. Photographer: Peter Foley/Bloomberg

Dec. 27 (Bloomberg) -- Galleon Group LLC co-founder Raj Rajaratnam, who is serving 11 years in prison for insider trading, agreed to pay $1.5 million to settle a civil case brought by the U.S. Securities and Exchange Commission.

Rajaratnam agreed to pay $1.3 million representing profits gained and losses avoided as a result of the conduct the SEC alleged in the case, according to a filing yesterday in federal court in New York. He will also pay $147,738 in interest.

Rajaratnam was convicted of directing the biggest hedge fund insider-trading scheme in U.S. history. At trial, the government introduced 45 wiretap recordings, along with documents and testimony derived from the wiretaps.

The agreement yesterday stems from a civil case in which Rajaratnam is a co-defendant with one of his alleged sources of illicit information, former Goldman Sachs Group Inc. director Rajat Gupta, who was sentenced to two years in prison for insider trading.

The $1.5 million total disgorgement is in a case separate from a lawsuit in which Rajaratnam is appealing a record $92.8 million penalty imposed by the SEC. In that case, Rajaratnam had argued that he shouldn’t have to pay a civil penalty because the judge in the criminal case ordered him to pay a $10 million fine and forfeit $53.8 million.

Gupta was convicted by a jury in June of one count of conspiracy and three counts of securities fraud. He was accused of passing illegal information about New York-based Goldman Sachs to Rajaratnam, his friend and business partner. The jury convicted Gupta of twice passing information about Goldman Sachs to Rajaratnam, once on Sept. 23, 2008, and again on Oct. 23, 2008.

The SEC had argued that Gupta should be required to pay the maximum civil penalty and is seeking $15 million from him. Gupta has objected to paying that much.

The case is U.S. Securities and Exchange Commission v. Gupta, 11-07566, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net;

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

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