Raj Rajaratnam
Raj Rajaratnam | |
|---|---|
| Born | June 15, 1957 Colombo, Dominion of Ceylon |
| Occupation(s) | Hedge fund manager, author |
| Known for | Founder of Galleon Group, insider trading conviction |
| Notable work | Uneven Justice: The Plot to Sink Galleon |
Rajakumaran Rajaratnam (born June 15, 1957) is a former hedge fund manager of Sri Lankan-American descent and the founder of the New York-based hedge fund firm, Galleon Group. He is also the author of the memoir Uneven Justice: The Plot to Sink Galleon.
In 2008, Rajaratnam was listed as the 262nd wealthiest individual in the United States according to the Forbes 400 rankings.
On October 16, 2009, the FBI arrested Rajaratnam on charges related to insider trading, an event that precipitated the downfall of Galleon Group. He faced trial in the Southern District of New York under U.S. v. Rajaratnam and was convicted on May 11, 2011, for all 14 counts involving conspiracy and securities fraud. Subsequently, on October 13, 2011, he received an eleven-year prison sentence along with fines exceeding $150 million in combined criminal and civil penalties.
Rajaratnam served his term at the Federal Medical Center in Devens, Massachusetts, before being granted home confinement in his Upper East Side apartment in Manhattan during the summer of 2019.
After completing seven and a half years of incarceration, he released his memoir Uneven Justice, which details his insider trading conviction and asserts claims of prosecutorial misconduct.
Early life
Born in Colombo, then part of the Dominion of Ceylon (present-day Sri Lanka), Rajaratnam is an ethnic Sri Lankan Tamil. His father, J. M. Rajaratnam, served as chairman and CEO of Singer Sewing Machine Co. Sri Lanka in 1970 and was also vice president for South Asia. His mother, Rajeshwari, was a homemaker.
Rajaratnam began his education at S. Thomas' Preparatory School, Kollupitiya prior to his family relocating to England in 1971. There, he continued his studies at Dulwich College in London, pursued engineering at the University of Sussex, and completed an M.B.A. at the Wharton School of the University of Pennsylvania in 1983.
Career
Rajaratnam launched his professional journey as a lending officer at Chase Manhattan Bank, where he concentrated on providing business loans to technology companies. In 1985, he transitioned to the investment banking boutique Needham & Co. as an equity research analyst, focusing on the consumer electronics and technology sectors. Demonstrating rapid career progression, he was promoted to head of research by 1987 and ascended to the presidency by 1991 at the age of 34. At Needham's behest, he initiated a hedge fund named the Needham Emerging Growth Partnership in March 1992, which he eventually purchased and rebranded as Galleon Group.
Galleon’s assets reached their highest level of $7 billion in 2008 but subsequently decreased to $3.7 billion by 2009. That year, his Diversified Fund, valued at $1.2 billion, achieved a net annualized return of 22.3%. Rajaratnam earned recognition among top-tier U.S. money managers in The New Investment Superstars, initially concentrating on technology and healthcare industries. He credited his accomplishments to frequent company visits and direct engagement with corporate executives.
After Rajaratnam’s arrest, investors in Galleon requested withdrawals totaling $1.3 billion, which led to the fund’s closure. On October 21, 2009, he announced the complete liquidation of all Galleon funds; by January 2010, investors had received both their original capital and accrued profits.
Conviction and imprisonment for insider trading
- Further details available at Raj Rajaratnam, Galleon Group, Anil Kumar, and Rajat Gupta insider trading cases
On October 16, 2009, the FBI apprehended Raj Rajaratnam on charges related to insider trading involving multiple publicly traded companies. U.S. Attorney Preet Bharara estimated that the illicit gains from this scheme exceeded $60 million, marking it as the most significant hedge fund insider trading prosecution in U.S. history. Rajaratnam denied all allegations and vowed to contest the charges.
He was accused of benefiting from confidential information provided by:
- Robert Moffat, a senior executive at IBM and a potential candidate for CEO.
- Anil Kumar, a senior figure at McKinsey & Company and close associate of former managing director Rajat Gupta, who was later convicted for transmitting inside information.
- Rajiv Goel, an Intel Capital executive at mid-level.
- Roomy Khan, previously convicted for supplying Rajaratnam with inside Intel information.
Interestingly, Rajaratnam, Goel, and Kumar were all alumni of Wharton’s business school class of 1983.
In the wake of Rajaratnam’s arrest, Sri Lanka’s stock market experienced a sharp downturn amid concerns about his fund’s operations. The Securities and Exchange Commission of Sri Lanka initiated an investigation into his trading activities for potential insider trading violations.
Rajaratnam was also implicated in acquiring confidential knowledge regarding Warren Buffett’s Berkshire Hathaway $5 billion investment in Goldman Sachs before it was publicly disclosed. Former Goldman Sachs board member and ex-McKinsey CEO Rajat Gupta was alleged to have shared this information with Rajaratnam. Gupta stood to gain as a prospective chairman of Galleon International and co-founder alongside Rajaratnam of New Silk Route. In March 2011, Gupta faced administrative charges from the SEC but maintained his innocence; the administrative charges were dismissed prior to any criminal prosecution.
Just days before Gupta’s arrest, reports revealed that prosecutors attempted to persuade Rajaratnam to cooperate by wearing a wire to record conversations with Gupta; however, Rajaratnam refused despite potential reductions in his sentencing.
On May 11, 2011, Rajaratnam was found guilty on all 14 counts related to conspiracy and securities fraud. Subsequently, on October 13, 2011, he received an 11-year prison sentence—the longest ever imposed for insider trading—with other defendants receiving average sentences of approximately three years.
Rajaratnam began serving his sentence in Ayer, Massachusetts. His appeal before the United States Court of Appeals for the Second Circuit was argued in October 2012 by Patricia Millett, who later became a federal judge.
On March 3, 2017, U.S. District Judge Loretta Preska denied Rajaratnam’s motion seeking to overturn most convictions or reduce his sentence. The court found no compelling evidence supporting claims of innocence or prosecutorial misconduct and rejected requests to lessen a $53.8 million forfeiture agreement.
Contributions to charitable and political organizations
Rajaratnam collaborated with the US State Department alongside private philanthropists to support the deployment of mine detection dogs aimed at humanitarian demining efforts in Sri Lanka. He contributed $5 million toward constructing 400 residences for both Sinhalese and Tamil populations affected by the 2004 Asian Tsunami.
The Ministry of Justice in Sri Lanka recognized Rajaratnam's substantial financial support dedicated to the rehabilitation of child soldiers formerly recruited by the Liberation Tigers of Tamil Eelam (LTTE). He committed $1 million specifically to aid in the reintegration of ex-LTTE fighters.
Data from the Federal Election Commission shows Rajaratnam made political donations exceeding $118,000 over a five-year span, backing the Democratic National Committee as well as campaigns for Barack Obama, Hillary Clinton, Chuck Schumer, and Bob Menendez.
Post-prison activities
After serving seven and a half years of an eleven-year sentence, Rajaratnam was released in mid-2019. In December 2021, he authored his memoir Uneven Justice, which recounts his conviction experience while offering a critical perspective on the American criminal justice system.
During an interview on CNBC with Andrew Ross Sorkin, Rajaratnam elaborated on the tactics that resulted in his conviction, providing detailed commentary on the legal proceedings against him.
See also
- SEC v. Rajaratnam
- Chip Skowron, hedge fund portfolio manager convicted of insider trading
- Mathew Martoma, hedge fund trader and portfolio manager convicted of insider trading