Rengan Rajaratnam Judge Narrows Case, Weighs Dismissal

The judge overseeing Rengan Rajaratnam’s insider-trading trial narrowed the case against the ex-trader, dismissing two of three counts as she weighs whether to toss out the third.

With the government’s direct case now over, U.S. District Judge Naomi Reice Buchwald in Manhattan ruled today that prosecutors had failed to present enough evidence that Rengan Rajaratnam, the younger brother of convicted hedge fund manager Raj Rajaratnam, used inside tips in 2008 to trade in Clearwire Corp.

Jurors won’t consider two fraud counts related to trades in the technology company, which carried prison terms of as many as 20 years. Her ruling leaves only a conspiracy charge, which has a maximum five-year penalty, and Buchwald is weighing a request to dismiss that count. A dismissal would mean Rengan Rajaratnam walks free.

“After considering the evidence in the light most favorable to the prosecution, can a reasonable jury find that Rengan traded on inside information?” Buchwald said outside the jury’s presence. “A reasonable jury could not.”

Rengan Rajaratnam, who worked his way up through Steven A. Cohen’s SAC Capital Advisors LP and Galleon Group LLC, the hedge fund co-founded by his brother, stands accused of conspiring with his brother and two others -- Anil Kumar, then a director at McKinsey & Co., and Danielle Chiesi, a securities analyst -- to trade illegally in Advanced Micro Devices Inc. and Clearwire Corp. He denies wrongdoing.

No Proof

Buchwald said she’ll decide tomorrow whether to dismiss the conspiracy count or let jurors return a verdict on it. Her “current thinking” is to allow jurors to consider the charge. Unless there’s a dismissal, the defense will begin presenting its case.

In dismissing the fraud counts, Buchwald adopted arguments by defense lawyer Dan Gitner, who said Raj Rajaratnam kept Rengan in the dark about his sources. Buchwald said there was no proof Rengan Rajaratnam knew whether his brother’s tippers were receiving some benefit in exchange for their leaks. The brothers traded in opposite directions, she added.

“You don’t have trades the same way,” Buchwald said. “You have no direct evidence of Raj passing inside information to Rengan.”

Intel Trades

The judge said there was no evidence that one of Raj Rajaratnam’s sources about a 2008 Clearwire transaction, Rajiv Goel, knew Rengan at the time of illegal trades. Goel, a former Intel Corp. executive, testified he passed tips to Raj Rajaratnam and didn’t meet Rengan until later.

The government can’t appeal Buchwald’s dismissal of the fraud counts. The judge rejected a request by prosecutors to allow the charges to go to the jury, after which she could dismiss them in the event of a conviction and prosecutors could appeal to reinstate them.

Before the trial, prosecutors trimmed their case by dropping other fraud counts when Buchwald ruled they were “internally inconsistent” with the conspiracy charge.

The case is U.S. v. Rajaratnam, 13-cr-00211, U.S. District Court, Southern District of New York (Manhattan).