May 31 (Bloomberg) -- Rengan Rajaratnam, the brother of convicted hedge fund manager Raj Rajaratnam, rejected a plea deal, a federal prosecutor said less than three weeks before the start of an insider-trading trial.
Rengan Rajaratnam’s lawyer confirmed the rejection at a hearing in Manhattan federal court. Also yesterday, the judge presiding over the case barred prosecutors from referring at trial to Rengan Rajaratnam’s earlier employment at SAC Capital Advisors LP, saying such a reference would be “most toxic.”
Rengan Rajaratnam, first indicted in March 2013, is accused of conspiring with his older brother to trade on material nonpublic information about Clearwire Corp. and Advanced Micro Devices Inc. He is charged with one count of conspiracy to commit securities fraud and two counts of securities fraud. Conspiracy carries a maximum five-year prison sentence; securities fraud a 20-year maximum.
The disclosure of the rejected plea offer came a year after the U.S. said it was discussing a deal with a lawyer for Rengan Rajaratnam. Assistant U.S. Attorney Randall Jackson told U.S. District Court Judge Naomi Reice Buchwald at the conclusion of yesterday’s pre-trial hearing that an offer had been made, saying: “The government did send a plea offer to Mr. Rajaratnam through Mr. Gitner and Mr. Rajaratnam rejected it.”
Dan Gitner, a current lawyer for Rengan Rajaratnam, confirmed that the proposal had been discussed with his client. Neither side disclosed details of the offer.
The U.S. says Rengan Rajaratnam, while working as a fund manager at Galleon Group LLC, made almost $1.2 million from trades that occurred in 2008 based on tips provided by his brother and his Rolodex of insiders.
He was implicated during his older brother’s 2011 trial, where wiretapped conversations between the two men were played in court. Rengan Rajaratnam pleaded not guilty yesterday to charges in a revised indictment filed by the U.S. earlier this month. Jury selection is scheduled to begin June 17.
Rengan Rajaratnam co-founded Sedna Capital Management LLC, a hedge fund advisory firm, after leaving SAC Capital where he worked as an analyst from May 2003 to January 2004. The U.S. has said the younger Rajaratnam worked at Galleon before going to SAC Capital and then returned to his brother’s hedge fund about 2008, when the alleged insider trading occurred.
SAC Capital, based in Stamford, Connecticut, last year reached a $1.8 billion settlement with the U.S., pleading guilty to making hundreds of millions of dollars in illegal profit and fostering a criminal culture at the firm that dated back to 1999.
The illegal trades based on inside information involved eight former SAC Capital employees who either pleaded guilty or were convicted after trial and not Rengan Rajaratnam. The hedge fund has since shut its doors to outside investors and changed its name to Point72 Asset Management LP.
Buchwald said yesterday she was concerned references to Rengan Rajaratnam’s employment at SAC and his brother’s conviction might prejudice the jury. Raj Rajaratnam is serving an 11-year prison sentence.
“A reference to SAC carries with it just a huge prejudicial component,” Buchwald said. “The defendant is a graduate of Stanford Business School. The notion of picking out the most toxic of his prior employers is not acceptable.”
Rengan Rajaratnam can present evidence that he had an “innocent mindset” citing his immediate return to the U.S. from Brazil when he learned he’d been indicted and after his brother had been sent to prison, the judge ruled.
The U.S. couldn’t have extradited Rajaratnam from Brazil on the federal charges, Gitner said, adding the country is “like a Swiss bank, that’s where fugitives go.”
Lawyers for both sides said Raj Rajaratnam’s conviction would probably be part of the trial because it would be difficult finding jurors who didn’t know about him.
“The name Rajaratnam is now synonymous, unfortunately, with that kind of case,” Gitner said.
The case is U.S. v. Rajaratnam, 13-cr-00211, U.S. District Court, Southern District of New York (Manhattan); the civil case is SEC v. Rajaratnam, 13-cv-01894, Southern District of New York (Manhattan).
To contact the reporter on this story: Patricia Hurtado in Federal Court in Manhattan at