Galleon Founder Gets 11 Years for Insider Trading

Galleon Management’s Raj Rajaratnam, 54, was ordered to spend 11 years in federal prison for his part in the biggest insider trading probes in history, according to Investment News and The Wall Street Journal. He was convicted of 14 counts of securities fraud and conspiracy back in May 2011 in the culmination of the government’s campaign to clean up the rampant illegal trading and corruption on Wall Street. The hedge fund billionaire made some $72 million in illegal profits by trading Goldman Sachs, Google, Hilton, Intel and other stocks on confidential information he obtained from a senior partner with McKinsey & Company, a tipster at Moody’s and a board member at Goldman Sachs, according to government documents.

The conviction and the sentencing resulted in a monumental fall from grace for a man that had grown up the son of a sewing machine factory worker to graduating from the University of Pennsylvania’s Wharton School of Business. After cutting his teeth in the early nineties by generating numerous Indian contacts in Silicon Valley, Rajaratnam founded Galleon in 1997. Galleon was soon known for its wild side and luxuries it bestowed on its employees such as massages, Super Bowl parties with rent-a-dates provided and a shower for an all-female sex show, among other kinky things like paying a female employee $5,000 to take a Taser stun-gun shot as other executives and employees watched her legs collapse beneath her.

In addition to the jail time, Rajaratnam was ordered to give back $53.4 million in ill-gotten profits and pay a monetary fine of $10 million. He awaits going to prison on November 28, 2011 and is currently out on a $100 million bail. The 11 year sentence was less than the Justice Department wanted because they were seeking 19 years to 24 years, which would have been enough to likely result in his death in prison. By comparison, Rajaratnam’s sentence was less than Enron’s Jeff Skilling, WorldCom’s Bernie Ebbers and Bernard Madoff, who were sentenced to 24 years, 25 years and 150 years, respectively.

Some of the voluminous allegations of the Justice Department were the fact that Rajaratnam lied to investigators with the U.S. Securities and Exchange Commission (SEC) under oath when he was questioned, that he wired considerable sums of money to offshore accounts in fictitious names to pay the tipsters for inside information, that he insisted on those aiding in the illegal trading use prepaid cellphones and he generated fictitious emails to cover his tracks and to create an ethical basis for making the illegal trades, among other things.

Although the bail was set at $100 million while he is out awaiting the start of his sentence and his appeal, the Justice Department vigorously opposed his release, since he has many contacts in his home country, Sri Lanka, where he would have access to endless amounts of cash.

The Rajaratnam legal team had requested that he be sent to the Buckner Federal correctional Complex near Raleigh, North Carolina, where Ponzi schemer Bernard Madoff is serving his 150 year sentence. The reason for the request is that Rajaratnam has a series of medical issues including a stroke in 2007, diabetes, anemia, nerve and kidney damage and other things. Expectations are that he will need a kidney transplant in the not too distant future, since this is commonplace with patients who have Type 2 diabetes.

Preet Bharara, the U.S. Attorney in Manhattan said, “it is a sad conclusion to what once seemed to be a glittering story.” Unfortunately, “privileged professionals do not get a free pass to pursue profit through corrupt means.”

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