Former Galleon Partner Ordered To Pay $92.8 Million Civil Penalty for Insider Trading

by Mike Mintz on December 7, 2011 · 1 comment

in martindale.com

On November 8, U.S. Judge Jed S. Rakoff of the Southern District of New York ordered former Galleon Management Co. General Partner Raj Rajaratnam to pay $92,805,705 in civil penalties to the Securities and Exchange Commission for his role in an insider trading scheme.  (Securities and Exchange Commission v. Raj Rajaratnam, et al., No. 09-8811, S.D. N.Y.).

In this case, the SEC alleged that Rajaratnam used his position as the head of the multibillion dollar hedge fund, Galleon, to trade on insider material, specifically on shares of Intel Corp., Clearwire Corp., Akami Technologies Inc., ATI Technologies Inc. and PeopleSupport Inc.  In the earlier parallel criminal action against Rajaratnam, U.S. Judge Richard J. Holwell, also of the Southern District of New York, sentenced Rajaratnam to 11 years in prison, ordered him to forfeit $53.8 million and fined him an additional $10 million in criminal penalties.

Rakoff ordered such a hefty civil penalty, taking into full consideration Rajaratnam’s criminal sentence.  In his order, Rakoff stated, “Here, the Court, at the request of the parties, has reviewed the portions of the Pre-Sentence Report in the parallel criminal case that set forth the defendant’s net worth, which considerably exceeds the financial penalties imposed in the criminal case.  When to this is added the huge and brazen nature of Rajaratnam’s insider trading scheme, which even by this own estimate, netted tens of millions of dollars and continued for years, this case cries out for the kind of civil penalty that will deprive this defendant of a material part of his fortune.”

In determining the civil penalty, Rakoff applied a trebling method and used statutory guidelines that provide a penalty “of up to, but no more than, ‘three times the profit gained or the loss avoided.’”  The judge adopted Rajaratnam’s civil penalty base figure of $30,935,235, which was lower than the SEC’s base figure of $33,512,929, explaining that “for present purposes the Court can accept the lower figure and still fulfill all the purposes of a civil penalty in this case.”  Accordingly, “the Court treble[d] the defendant’s figure of $30,935,235 and arrive[d] at a civil penalty of $92,805,705…”

The SEC’s press release may be found online at http://www.sec.gov/news/press/2011/2011-233.htm

{ 1 trackback }

Public group with Mirrored blogs - Blog
January 9, 2012 at 11:47 am

{ 0 comments… add one now }

Add a Comment






Asterisks (*) indicate required fields.

Use of and participation in this website are subject to Terms & Conditions