NEW YORK AND LOS ANGELES — Federal authorities shook the often secretive world of hedge funds with the arrests Friday of the billionaire founder of a major New York operation and five others on charges they engaged in extensive insider trading that allegedly netted more than $20 million in illicit profits.
After taking the unusual step of using wiretaps in the investigation, authorities accused Raj Rajaratnam, the founder of the $7-billion hedge fund Galleon Group, two executives at California companies and three others of multiple counts of conspiracy and securities fraud.
For The Record
Los Angeles Times Wednesday, October 21, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 58 words Type of Material: Correction
Hedge fund case: An article in Business on Saturday about the arrests of hedge fund billionaire Raj Rajaratnam and five others misidentified two of the defendants, Danielle Chiesi and Mark Kurland, as associated with Newcastle Partners in Greenwich, Conn. They were with New Castle Partners in New York, the majority of which is now called New Castle Funds.
It's the biggest criminal case involving hedge fund insider trading, said Preet Bharara, the U.S. attorney for Manhattan, and is believed to be the first time that court-authorized wiretaps have been used in insider-trading cases.
"This aggressive use of wiretaps is important. It shows that we are targeting white-collar insider trading rings with the same powerful investigative tools that have worked so successfully against the mob and drug cartels," Bharara said.
Jacob Frenkel, a former federal prosecutor now in private practice, noted the trend: "In the aftermath of the financial crisis, we're seeing a re-direction of criminal enforcement attention toward Wall Street using aggressive methods," he said.
Hedge funds are open only to institutions and wealthy individuals and employ a wider range of trading activities than other investment funds.
The defendants included Rajiv Goel, 51, of Los Altos, managing director of strategic investments in Intel Corp.'s treasury division, and Anil Kumar, 51, of Santa Clara, a director at management-consulting giant McKinsey & Co.
Among the stocks the defendants traded in, according to authorities, were Google Inc., Advanced Micro Devices Inc. and Hilton Hotels Corp.
Separately, the Securities and Exchange Commission filed a civil complaint against the defendants. Together, the federal actions portray a cross-country ring in which highly placed executives passed on chunks of information gleaned from their jobs.
At the center was Rajaratnam, one of the world's wealthiest men. He is worth $1.3 billion and is the world's 559th richest person, according to Forbes magazine. His allegedly illegal trading earned $12.7 million for Galleon, authorities said.
