Raj Rajaratnam Pays Record Fine

Jack Humphrey, Regulatory journalist
November 09, 2011 /

The Securities and Exchange Commission h asobtained a record financial penalty of $92.8 million against billionaire hedge fund manager Raj Rajaratnam for widespread insider trading.

The final judgment entered by the Honorable Jed S. Rakoff of the U.S. District Court for the Southern District of New York orders Rajaratnam to pay a civil monetary penalty of $92,805,705, which marks the largest penalty ever assessed against an individual in an SEC insider trading case.

The SEC initially charged Rajaratnam on Oct. 16, 2009 over allegations that he and several others including his New York-based hedge fund advisory firm Galleon Management LP engaged in a massive insider trading scheme. The SEC subsequently amended its complaint in November 2009 and January 2010, adding several more defendants and alleging additional insider trading schemes that cumulatively generated more than $52 million in illicit gains.

On Oct. 26, 2011, the SEC charged former McKinsey & Co. global head Rajat Gupta with illegally passing confidential information to Rajaratnam while serving on the boards of Goldman Sachs and Procter & Gamble (P&G).

The SEC also filed new insider trading charges against Rajaratnam for causing various Galleon funds to trade based on Gupta’s inside information, generating illicit profits or loss avoidance of more than $23 million. This insider trading enforcement action against Rajaratnam remains pending before Judge Rakoff.

On January this year, New York-based hedge fund advisory firm Trivium’s hedge fund manager Robert Feinblatt and analyst Jeffrey Yokuty were implicated by the SEC in the insider trading, with several other professional traders in the securities of 14 companies.

“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

The SEC’s enforcement action against Rajaratnam and Galleon was part of a larger insider trading probe that has resulted in civil charges against a total of 29 individuals and entities including hedge fund advisers, Wall Street professionals, and corporate insiders.

The SEC alleged insider trading in the securities of more than 15 publicly traded companies for more than $90 million in illicit profits or losses avoided.

In the parallel criminal case, the SEC provided significant assistance to the U.S. Attorney’s Office for the Southern District of New York in its successful criminal prosecution of Rajaratnam, who was found guilty on May 11, 2011, of all 14 counts charged, including five counts of conspiracy to commit securities fraud and nine counts of securities fraud.

Following the jury verdict, Rajaratnam was sentenced to a term of imprisonment of 11 years, and was ordered to pay more than $53.8 million in forfeiture of illicit gains and $10 million in criminal fines.

The total amount of monetary sanctions imposed on Rajaratnam in the civil and criminal cases is more than $156.6 million.

The order further finds that Rajaratnam is liable for an unspecified amount of disgorgement and prejudgment interest, which are deemed satisfied by the forfeiture ordered against Rajaratnam in the criminal case.

Separately, on Oct. 27, 2011, the SEC obtained a final judgment by consent against Rajaratnam’s firm Galleon Management, permanently enjoining it from violating the antifraud provisions of the federal securities laws and holding it jointly and severally liable for the monetary relief ordered against Rajaratnam.


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