US PROSECUTORS who used wiretaps to make their insider trading case against billionaire Raj Rajaratnam, founder of hedge fund firm Galleon Group, have said they will use similar tactics to fight future crimes on Wall Street.
US attorney Preet Bharara said in Manhattan yesterday that the justice department would employ the same kind of electronic surveillance traditionally reserved for organised crime, drug syndicates and terrorism prosecutions.
Mr Bharara, whose office has jurisdiction over the headquarters of some of the world’s biggest financial firms, said investigators relied on wiretaps to build a case against Mr Rajaratnam and former directors at a Bear Stearns hedge fund.
Mr Rajaratnam and executives from some of the most prestigious US companies were charged on Friday with the largest hedge fund insider-trading scheme on record.
Investigators said they used court-approved phone wire taps for the first time in a Wall Street insider trading case, sending shivers through the hedge fund industry, which has traditionally picked up and shared trading tips to make big profits.
At the centre of the case are Mr Rajaratnam, his Galleon hedge fund, and two executives from hedge fund New Castle, which was a unit of Bear Stearns Asset Management before Bears Stearns Cos collapsed in 2008, but is still in operation.
Three executives from IBM, consulting firm McKinsey, and the venture-capital arm of chip giant Intel are also facing criminal charges.
“This is not a garden-variety insider trading case,” Mr Bharara said at a news conference.
He said the scheme made more than $20 million (€13.4 million) in illegal profits over several years.
One of the criminal complaints accuses Mr Rajaratnam (52), considered the richest Sri Lankan in the world, of conspiring with Intel Capital treasury department managing director Rajiv Goel and Anil Kumar, a director of McKinsey Co. The alleged offences took place over three years starting in January 2006.
Galleon had as much as $7 billion under management, the complaint said.
Early on Friday evening, a US magistrate judge in New York said Mr Rajaratnam may be released on a $100 million personal recognizance bond secured by $20 million in cash and property.
In a brief appearance, Mr Rajaratnam sat in court with his arms folded.
The judge restricted his travel to a radius of 177km (110 miles) from Manhattan. Mr Rajaratnam, a citizen of both Sri Lanka and the US, surrendered travel documents.
A prosecutor argued that Mr Rajaratnam was a flight risk, but his lawyer, Jim Walden, said: “A court’s going to learn there’s a lot more to this case. There is no way that this man is going to flee.”
A second criminal complaint accused three other people – New Castle portfolio manager Danielle Chiesi, New Castle general partner Mark Kurland, and Robert Moffat, a senior vice-president in the IBM technology group – of insider trading crimes and earning millions of dollars in illegal profits.
“It shows that we are targeting white-collar insider trading rings with the same powerful investigative techniques that have worked so successfully against the mob and drug cartels,” Mr Bharara said.
All six were charged with securities fraud and conspiracy in two criminal complaints filed in the US district court in Manhattan.
Mr Kumar was permitted to be released on a $5 million bond, Mr Kurland on a $3 million bond, and Mr Moffat and Ms Chiesi on a $2 million bond. In California, Mr Goel posted $300,000 cash for bail.
The six were also charged in a separate civil complaint by the US Securities and Exchange Commission. The commission said the accused traded on insider information from 10 companies. – (Bloomberg, Reuters)
