Former Hedge Fund Tycoon Rajaratnam Receive the Stiffest Sentence For Insider-Trading

Galleon Group LLC’s Raj Rajaratnam is sentenced to 11 years on Thursday for masterminding the biggest hedge-fund insider trading scheme in U.S. history, that stretched from Silicon Valley to Wall Street.

U.S. District Judge Richard Holwell in Manhattan presided over the jury trial in which Rajaratnam was convicted of 14 counts of securities fraud and conspiracy. It was the stiffest sentence ever given for trading in the stock market using confidential corporate information.

The longest insider-trading sentence before Galleon was 10 years, given to former Credit Suisse Group AG banker Hafiz Muhammad Zubair Naseem, who was convicted in 2008 of leading a $7.8 million scheme.

Sri Lankan born Rajaratnam's rapid flight to billionaire hedge fund chief was undone with the arrest of a former Atherton resident who became a federal informant.

The informant, Roomy Khan, had been caught faxing confidential information to Galleon in 1998 when she worked at Intel. She pleaded guilty in 2002. Caught again in 2007, Khan agreed to cooperate in an investigation of Galleon. 

Rajaratnam, 54, was at the center of a seven- year conspiracy to trade on inside information from corporate executives, bankers, consultants, traders and directors of public companies.

He is fined $10 million and was also ordered to forfeit $53.8 million in illegal profits by the U.S. District Judge Richard J. Holwell, his "crimes and the scope of his crimes reflect a virus in our business culture that needs to be eradicated." Said Howell.

In court papers, the government urged Holwell to make an example of Rajaratnam, saying he "represents the worst of illegal insider trading." Prosecutors compared him to Enron Corp.'s Jeffrey Skilling and WorldCom Inc.'s Bernard Ebbers, convicted in what prosecutors called "the worst of accounting frauds," and Bernard Madoff, the man behind history's biggest Ponzi scheme.

Rajaratnam's lawyer has asked for leniency based on medical conditions he said would be life-threatening if he's sent to prison.

Also caught up in the case Danielle Chiesi, the former beauty queen turned stock trader sentenced to two-and-a-half years in jail for her role in the biggest insider-dealing case in decades. She pleaded guilty to three counts of conspiracy to commit securities fraud arising from an insider trading scheme.

Chiesi, 45, was the former confidante of hedge fund billionaire Raj Rajaratnam, founder of the Galleon hedge fund.

Alan Kaufman, her lawyer, argued that Chiesi, said she was the victim of a "toxic" sexual relationship with Mark Kurland, her former boss and lover at trader New Castle Partners.

Chiesi was the 10th person to be sentenced after an insider-dealing investigation that has secured 46 guilty pleas and convictions.

The investigation caught many prominent valley figures. Among them were Anil Kumar, of Saratoga, a McKinsey & Co. executive who gave Rajaratnam a tip about an Advanced Micro Devices acquisition; Rajiv Goel, of Los Altos, an Intel executive who furnished advance word on Intel's earnings and an acquisition of broadband company Clearwire; and Ali Harari, of San Jose, an Atheros Communications executive who was accused of divulging confidential information. Richard Choo-Beng Lee and Ali Far, who ran the short-lived Spherix hedge fund in San Jose.