Rengan Rajaratnam Says His Brother, Galleon Cheated Him

  • Raj Rajaratnam also named in fraud lawsuit filed in New York
  • Rengan Rajaratnam first to be cleared in insider probe

Raj Rajaratnam’s Galleon Group LLC has a new adversary: The imprisoned hedge fund manager’s younger brother Rengan Rajaratnam claims to have been cheated out of $13.5 million in pay while working for him.

Rengan was the first defendant to be cleared of criminal wrongdoing in a federal insider-trading probe that ensnared Raj. A federal jury in 2011 found Raj was at the center of the most wide-ranging insider-trading scheme in a generation by routinely tapping into a Rolodex of corporate insiders and hedge-fund traders for tips. He was sentenced to 11 years in prison.

Rengan claims in a lawsuit filed in New York state court that he had a deal to collect 10 percent commissions on profits he generated for the fund and his portfolio in 2009, the year of Raj’s arrest. Instead, Rengan alleged, Galleon officials gave him false revenue information and documents.

“Had Rengan Rajaratnam been provided accurate documents by the Galleon Group, it would have confirmed that he had earned over $83 million of profits,” according to the complaint. "Rengan Rajaratnam was not paid."

Rengan, who was an analyst and portfolio manager during his six years at the fund, said Galleon and Raj induced him to settle his claims by falsely misrepresenting and concealing material information.

Rengan also alleged that Galleon was supposed to pay his legal fees after the U.S. began an investigation and instead he received only a "small amount" and the company refused to pay any more. Raj and others took $18 million held offshore that might have been used to pay the legal expenses for their own use, Rengan claimed.

Out-of-Pocket Payments

Rengan ended up paying $2 million out of his own pocket and may have to pay $2 million more, according to the complaint.

At his 2014 trial in Manhattan federal court, Rengan’s lawyer said Raj treated Rengan as an “emotionally abused younger brother” and manipulated him into doing Raj’s bidding. Prosecutors disputed this claim, noting the evidence showed Raj allowed his younger brother to remain at Galleon even after losing at least $30 million in a bet on Bear Stearns just before it collapsed.

Rengan, a graduate of the University of Pennsylvania and Stanford Graduate School of Business, was also implicated during Raj’s trial, where wiretapped conversations between the brothers were played in court. It was the first white-collar case to make extensive use of federal wiretaps, a tactic previously associated with investigations of organized crime. Many of those recordings, including one in which Rengan tried to recruit a former Stanford classmate for tips the brothers could use, were played at Rengan’s trial.

The younger Rajaratnam worked several times for Raj at Galleon, the evidence showed. After stints at Morgan Stanley and Galleon, Rengan joined Stamford, Connecticut-based SAC Capital, where he worked as an analyst from May 2003 to January 2004. He then co-founded Sedna Capital Management LLC in 2004 with a Galleon colleague. Rengan returned to Galleon around 2008, when the U.S. said the insider trading occurred.

Rengan and Sedna were the first to be scrutinized by the U.S. Securities and Exchange Commission, which later led the government to investigate Galleon and Raj, pretrial testimony at Raj’s trial showed. Regulators, the Federal Bureau of Investigation and prosecutors then turned their focus to Raj, who was arrested in October 2009.

Rengan agreed in October 2014 to pay more than $841,000 to settle a U.S. Securities and Exchange Commission lawsuit, alleging he traded on nonpublic information. He didn’t admit any wrongdoing in the agreement.

Samidh Guha, a lawyer for Raj Rajaratnam, and John Nathanson, a lawyer for Galleon, didn’t immediately return voice-mail messages left at their offices seeking comment about the lawsuit.

Of the 100 people charged with insider trading by Manhattan U.S. Attorney Preet Bharara, Rengan is the only person to be acquitted after a trial. Eighty-seven were convicted of wrongdoing.

The case is Rajaratnam v. Galleon Management LLC. 653435/2015. New York State Supreme Court, New York County (Manhattan).

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