Rengan Rajaratnam, the brother of jailed billionaire Raj Rajaratnam- a star trader who founded the hedge-fund firm Galleon Group- has been charged with insider trading and earn nearly $1.2 million illegally, authorities announced on Thursday.
Media reports said that federal prosecutors charged Rengan Rajaratnam, of Manhattan, 42 years old, with six counts of securities fraud and one count of conspiracy in an indictment handed up by a grand jury Wednesday and unsealed Thursday. The Securities and Exchange Commission filed similar allegations in a civil suit.
"Rengan Rajaratnam's career arc paralleled his brother's," said Federal Bureau of Investigation (FBI) Assistant Director-In-Charge George Venizelos. "He followed in Raj's footsteps by obtaining an M.B.A. from a top-flight business school. He went to work for Raj at Galleon.…Now Rengan's career arc has descended to the same place his brother's did less than four years ago: defendant."
The Wall Street Journal reported the impending indictment Thursday morning, and that Rengan Rajaratnam has been living in Brazil and was seen by U.S. officials as a flight risk.
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It is unclear whether he would return to willingly to the U.S. or would face extradition. Prosecutors and the FBI declined to comment on that point.
Rengan Rajaratnam's lawyer, David C. Tobin, declined to comment in advance of the indictment Thursday and didn't respond to requests after it was filed.
The charges come more than three years after the arrest of Raj Rajaratnam, 55 years old, a billionaire Sri Lankan immigrant who prosecutors said cultivated a corrupt network of corporate insiders to trade on illegal tips. He was convicted in May 2011 and is serving an 11-year sentence in federal prison in Massachusetts.
The charges filed against Rengan Rajaratnam relate to insider-trading allegations that surfaced at the 2011 trial, where jurors heard Rengan in often brash, obscenity-laced conversations with his brother about stocks and potential sources of information.
"Everybody's a s—bag," Rengan said in one wiretapped call. Prosecutors said he was referring to a friend's apparent willingness to give him inside information.
Rengan first worked for his brother's firm starting in 2001. He was known for making big risky bets with the roughly $50 million he managed, former Galleon employees say. At parties and get-togethers, Rengan favored cognac and cigars and boasted about his black belt in a martial art, which he never identified, the former employees say.
He would frequently fly to South Beach in Miami and stay in his brother's apartment, the former employees say.
Rengan's performance as a stock picker was subpar, the former employees say, and he was resented internally by some because Raj allowed him to continue managing money even after racking up losses.
The brothers were close, although they had falling outs at times, people close to Raj say. Rengan Rajaratnam left Galleon to join SAC Capital Advisors in 2003 because of a rift with Raj, who believed Rengan didn't treat him with respect, the people say.
Rengan Rajaratnam rejoined Galleon in 2007 after the SEC began investigating Sedna Capital Management, the hedge fund he founded in 2004 and which counted Raj as an investor. Raj was deposed in that matter and Galleon was ultimately drawn into the investigation. As a result, Raj blames Rengan for his woes, the people say.
Unlike his older brother, Rengan Rajaratnam spoke without a Sri Lankan accent and he was considered more assimilated into American culture, former Galleon employees say. The brothers together helped finance a film, "Today's Special," which debuted at the Indian Film Festival in Manhattan in November 2009, about a month after Raj Rajaratnam's arrest.
Manhattan U.S. Attorney Preet Bharara said in a statement that the brothers were allegedly at the heart of an insider-trading scheme that swept up "an unprecedented number of people in its web of corruption"
In Thursday's indictment, prosecutors say the brothers conspired to trade on inside information in the stocks of wireless-broadband company Clearwire Corp. CLWR +0.16% and chip-maker Advanced Micro Devices Inc. AMD -4.00% in 2008, for a total of $1.2 million in illegal profits.
The SEC accused Rengan Rajaratnam of trading illegally along with his brother from January 2006 until July 2008 in other stocks as well, including Polycom Inc., PLCM +0.09% Hilton Hotels Corp. and Akamai Technologies Inc. AKAM -1.24% A five-year deadline for filing securities-fraud charges on the Clearwire trading was set to expire next week.
According to the indictment, Raj Rajaratnam learned of a joint wireless venture involving Clearwire and Intel Corp. INTC -0.66% from a friend, Rajiv Goel, who worked at Intel, and traded on it in late March 2008.
Mr. Goel pleaded guilty to insider-trading charges and testified against Raj Rajaratnam. He received a sentence of probation.
Clearwire shares were bought in Rengan's personal brokerage account as well as in a Galleon fund he managed, according to authorities.
In a call recorded by the FBI on the evening March 25, 2008, Rengan Rajaratnam expressed dismay that news of the deal had broken. "Oh dude, we're f—ed" Rengan Rajaratnam told his brother, according to the tape played for jurors in the Raj Rajaratnam trial. "It just hit The Wall Street Journal."
Prosecutors also said Raj Rajaratnam bought 250,000 AMD shares for Rengan in 2008 based on an illegal tip about a pending investment. In wiretapped calls on Aug. 15, 2008, the brothers discussed getting more information from a consultant Rengan knew from business school, according to transcripts filed in court. Rengan said he'd suggested giving the man's wife a job at Galleon, and they agreed the man was "a little dirty."