July 8 (Bloomberg) -- Rengan Rajaratnam, the brother of Galleon Group LLC co-founder Raj Rajaratnam, became the first of at least 88 people charged in a federal crackdown on insider trading to escape conviction.
A federal jury in New York after little more than three hours of deliberations today found Rengan Rajaratnam not guilty of scheming with his older brother to commit insider trading in 2008.
It’s the only trial loss in the crackdown on insider trading at hedge funds for Manhattan U.S. Attorney Preet Bharara and the Federal Bureau of Investigation. Of those charged since 2009, at least 81 were convicted at trials or pleaded guilty. Rengan Rajaratnam was one of 10 people whose case went to trial. He was living in Brazil when he learned of his indictment.
“Go back to Brazil for the finals,” U.S. District Judge Naomi Reice Buchwald told him following the verdict and after she canceled his bail, in reference to the pending World Cup soccer match.
Rengan Rajaratnam, 43, smiled and replied: “Absolutely.”
He was accused of conspiring with his older brother Raj to get nonpublic information in 2008 to trade ahead of deals involving Advanced Micro Devices Inc. and Clearwire Corp. Raj Rajaratnam, the co-founder of Galleon Group LLC, was convicted of insider trading after a trial in 2011 and is serving an 11-year prison term.
During the trial, which began June 17 with jury selection, prosecutors argued phone conversations between the two brothers, secretly recorded by the FBI, proved Rengan Rajaratnam entered into a scheme to get illegal tips using Raj’s Rolodex of insiders.
Rengan’s lawyer, Daniel Gitner, said the government failed to prove its case and charged his client only based on evidence gathered against his older brother.
Raj Rajaratnam manipulated Rengan into doing his bidding, Gitner said. The government failed to prove Rengan knew what Raj was up to, who provided the illegal tips and what, if any, benefit the insiders received, Gitner said.
Rengan Rajaratnam, who worked his way up through Steven A. Cohen’s SAC Capital Advisors LP until he became a fund manager at Galleon Group, conspired with his brother and two others: Anil Kumar, then a director at McKinsey & Co., and Danielle Chiesi, a securities analyst, according to the prosecutors.
In one instance, cited by prosecutors, Raj discussed that he got a tip from a business school classmate that Sunnyvale, California-based Advanced Micro Devices Inc. was getting a multibillion-dollar investment. Rengan, following up on the information, told Raj in a call recorded by the government that his former classmate “spilled his beans” about the proposed deal.
“He’s like, ‘Buy it, buy as much as you can as soon as you can,’” Rengan Rajaratnam told his brother on the call. On another call, Rengan Rajaratnam called the former classmate a “scumbag” and told his brother he was “a little dirty.”
Buchwald narrowed the case by dismissing two counts of securities fraud which alleged Rengan Rajaratnam traded on Clearwire based on tips provided by his brother. The jury of eight women and four men were left to consider only the conspiracy charge, which has a maximum five-year prison sentence.
Buchwald’s dismissal of the charges was final, with no opportunity for the government to appeal.
While Buchwald rejected Rengan Rajaratnam’s bid to exclude the wiretapped calls with his brother as evidence, she ruled that he could present an “innocent mindset” defense.
Husseni Rasiwala, who until last year shared an apartment with Rajaratnam in Brazil, testified that he was there when Rengan learned he’d been indicted by a federal grand jury in New York.
“‘I am innocent, this is about my brother, not me. I want to go back and clear my name,’” Rasiwala cited Rengan as saying.
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).
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