A U.S. court has acquitted the younger brother of jailed hedge fund manager Raj Rajaratnam of conspiring with him in an insider trading scheme, marking the first defeat in an impeccable track record of insider trading prosecutions for federal prosecutor Preet Bharara.
Rengan Rajaratnam (43) was found not guilty on Tuesday by a jury of eight women and four men after a three-week trial on a sole conspiracy count.
Last year, Mr. Rajaratnam was charged with conspiracy and securities fraud. The jury cleared him of the single charge against him.
The verdict came as a blow to Mr. Bharara and his team of federal prosecutors who have not lost a case in the years-long crackdown on insider trading on Wall Street.
Mr. Bharara’s office has secured 85 convictions and guilty pleas from traders, analysts, industry consultants including by billionaire investor Steven Cohen, former Goldman Sachs director Rajat Gupta and Sri Lankan founder of the Galleon hedge fund Raj Rajaratnam, who is currently serving an 11-year prison sentence.
Expressing disappointment at the verdict, Mr. Bharara said his team will continue to investigate and prosecute those who violate federal securities laws.
“While we are disappointed with the verdict on the sole count that the jury was permitted to consider, we respect the jury trial system whatever the outcome, and we thank the jury for their service. This office maintains its faith in the criminal justice system, a system that has resulted in the convictions by trial or guilty plea of 85 other defendants on insider trading charges. We will continue to seek justice in the investigation and prosecution of those who violate the securities laws of the US,” Mr. Bharara said in a statement.
Prosecutors had dropped four counts against Mr. Rajaratnam before trial while last week the judge overseeing the trial dismissed the two most serious securities fraud charges against him.
U.S. District Judge Naomi Buchwald had ruled that there was not enough evidence to support the charges and told prosecutors some of their arguments were “singularly unpersuasive”.
The trial had mostly focused on phone calls between Raj Rajaratnam and other co-conspirators in which Rengan Rajaratnam did not participate.
Ms. Buchwald had said last week that prosecutors could not hold Mr. Rajaratnam responsible for his brother’s crimes and that they needed to focus on what he did and not “just on dirt on everyone else”.
Mr. Rajaratnam’s lawyer, Daniel Gitner, had said at trial at the government failed to prove its case and charged his client only based on evidence gathered against his older brother.
Mr. Rajaratnam was a former portfolio manager at Galleon and federal prosecutors had alleged that he conspired with his elder brother to trade on the basis of inside information concerning Clearwire and Advanced Micro Devices that he received from two Indian executives in 2008. He earned nearly $1.2 million in profits.
Prosecutors had said that the inside information concerning Clearwire came from Intel employee Rajiv Goel.
In March 2008, Goel provided inside information to his Raj Rajaratnam concerning a significant transaction in which Intel would invest approximately a billion dollars in Clearwire in exchange for a 10 per cent equity position. Raj Rajaratnam shared the information with his younger brother who then bought Clearwire stock.
The inside information concerning AMD originated from Anil Kumar, who was, at the time, a partner of global management consulting firm.
In August 2008, Raj Rajaratnam bought three million shares of AMD for a Galleon hedge fund that he managed. Prosecutors said the Rajaratnam brothers spoke about the AMD inside information and also about efforts that Rengan Rajaratnam was making to cultivate another McKinsey partner as a source of inside information.
Specifically, Rengan Rajaratnam advised his brother that he had just finished a meeting with McKinsey Partner A in which McKinsey Partner A “spilled his beans” and “volunteered the information about the investments” in AMD.
Goel and Kumar had both pled guilty and were sentenced to two years of probation in 2012.