New York residents Raj Rajaratnam and Danielle Chiesi have been charged with a 17-count indictment involving conspiracy and securities fraud crimes stemming from their alleged involvement in the largest hedge fund insider trading case in history.
Rajaratnam was the managing member of Galleon Management and a portfolio manager for Galleon Technology Offshore. Chiesi was an employee of New Castle Funds, formerly the equity hedge fund group of Bear Stearns Asset Management.
According to the indictment, Rajaratnam, Chiesi and others repeatedly traded on material, nonpublic information pertaining to upcoming earnings forecasts, mergers, acquisitions, or other business combinations.
The inside information was given as tips by insiders and others at hedge funds, public companies and firms, including Intel, IBM, McKinsey, Akamai Technologies and Polycom.
As a result of their insider trading, Rajaratnam, Chiesi, and others earned millions of dollars of illegal profits for themselves and the hedge funds with which they were affiliated.
Rajaratnam engaged in overlapping schemes with Ali Far and Roomy Khan – both of whom have pleaded guilty to insider trading charges and are cooperating with the US government – as well as Chiesi and other co-conspirators to trade on the basis of inside information in several publicly traded companies. Specifically, these individuals engaged in insider trading in Polycom, Hilton Hotels, Google, Clearwire, Akamai, Advanced Micro Devices and PeopleSupport.
Among other things, telephone conversations between Rajaratnam and Chiesi, intercepted based on court-authorized wiretaps of phones, revealed that Rajaratnam, Chiesi and others routinely received inside information directly or indirectly from insiders and provided it to each other for the purpose of trading based on the information.
Chiesi and Rajaratnam also conspired to obtain and trade on inside information relating to AMD and Akamai. Chiesi provided Rajaratnam with inside information about Akamai that she obtained from an Akamai source, while Rajaratnam and Chiesi provided one another with inside information about AMD. As a result, Rajaratnam reaped profits of approximately USD3.5m.
Chiesi also conspired with a top executive at New Castle (CC-3) to benefit from insider trading in accounts affiliated with New Castle based on inside information that Chiesi obtained about AMD, Akamai, IBM, and Sun Microsystems. Among other things, Chiesi obtained information from an Akamai source as well as from a senior vice president and group executive of IBM (CC-4). In particular, Chiesi obtained inside information concerning AMD from CC-4 and Rajaratnam, and shared that information with CC-3 at New Castle. As a result of the insider trading activity in AMD, Akamai, IBM, and Sun Microsystems, Chiesi, CC-3, and others earned a total profit in New Castle-affiliated accounts of more than USD4m from the scheme – including, according to the Complaint filed earlier against Chiesi, USD2.4m from trading in Akamai alone.
The indictment charges Rajaratnam with five counts of conspiracy to commit securities fraud and six counts of securities fraud. The indictment also charges Chiesi with three counts of conspiracy to commit securities fraud and seven counts of securities fraud.
Each of the conspiracy counts against Rajaratnam and Chiesi carries a maximum sentence of five years in prison and a maximum fine of the greater of USD250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of USD5m. As a result of the charges against them, Rajaratnam faces a maximum term of imprisonment of 145 years, and Chiesi faces a maximum term of 155 years in prison. The indictment also seeks forfeiture of the proceeds of the charged crimes.
Rajaratnam, 52, and Chiesi, 44, both reside in New York. The case has been assigned to US District Judge Richard J. Holwell.
The related cases against Mark Kurland, Anil Kumar, Robert Moffat and Rajiv Goel are pending on criminal complaints.
