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Hedge Fund Manager's Arrest Sends Shock Waves Through Wall Street

By       Message Bill Hare     Permalink
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Raj Rajaratnam had a ready response for those inquiring about the success of his hedge fund, the Galleon Group, that of a strong desire for winning.

"It is pride, I want to win," Rajaratnam said in "The New Superstars," a book by Lois Peltz published in 2001. "After awhile, money is not the motivation. I want to win every time. Taking calculated risks gets my adrenaline pumping."

Prosecutors claim that this zeal for winning crossed the line into criminal activity according to a report by Michael J. de la Merced and Zachery Kouwe of the New York Times.

At dawn on Friday, November 16, Rajaratnam was arrested at his expensive Manhattan home. He was charged with running the biggest insider trading scheme involving a hedge fund.

In 2007 Rajaratnam's name surfaced in connection with an inquiry into fund raising for the Tamil Tigers, the Sri Lankan rebel group that was defeated in May after a quarter century of violence. He has always remained close to his homeland. After the island was struck by a tsunami in 2004 he organized a charity to raise money to rebuild homes.

The charity he created, Tsunami Relief, gave $1.5 million to the Tamil Rehabilitation Organization, a group officially dedicated to helping victims of the fighting. Prosecutors have since charged the charity with aiding the rebel group and its non-profit status has been suspended.

News of Rajaratnam's arrest has shaken the secretive hedge fund world in which intelligence on companies is often shared among Wall Street analysts, traders, and other investors.

"The defendants operated in a cozy world of 'you scratch my back, I'll scratch your back,'" Preet Bharara, United States Attorney for the Southern District of New York, said on Friday. Bharara stated that the case should serve as a wakeup call for hedge fund managers considering insider trading.

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The government's use of wiretapping and confidential witnesses in the Galleon case raises questions about when investors can act on non-public information.

Rajaratnam rose from the ranks of technology analyst to become a hedge fund billionaire. By the time of his arrest Forbes estimated his net worth this year at $1.3 billion, making him one of the world's wealthiest people.

In addition to his involvement in Sri Lanka politics, Rajaratnam had ties to the American political scene. During the 2008 campaign cycle he donated more than $30,000 to Barack Obama, Hillary Rodham Clinton, and the Democratic Party.

After growing up in Sri Lanki, Rajaratnam came to America and attended the prestigious Wharton School at the University of Pennsylvania. He became a technology analyst at the investment bank Needham & Company. Ultimately he became Needham's president.

After beginning a hedge fund for Needham clients he left the firm in 1997. He took the fund with him and called it Galleon after the Spanish empire's ships used to transport gold and spices from the New World.

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Several of Galleon's employees, like Rajaratnam, had engineering backgrounds. At its peak the firm managed $7 billion in assets. The figure has since dropped to a current level of about $3.7 billion.

Galleon had been previously accused of wrongdoing by regulators. In 2005 it paid more than $2 million to settle a Securities and Exchange Commission lawsuit claiming it had conducted an illegal form of short selling.


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Began in the journalism field in hometown of Los Angeles. Started as Sports Editor and Movie Writer at Inglewood Daily News chain after working in sportswriting of high school events at the Los Angeles Examiner.

Received a bachelor's in (more...)

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