The Colombo Stock Exchange (CSE) on Monday witnessed the biggest fall in the last five years, following the arrest of the Sri Lanka-born New York hedge fund billionaire, Raj Rajaratnam, on charges of “vast insider trading.”

The Central Bank of Sri Lanka (CBSL), however, said the investigations into the Galleon Group hedge fund founder were inconclusive and urged observers and analysts not to jump to conclusions.

Mr. Rajaratnam is the richest Sri Lanka-born U.S. citizen and his firm has a stake in all of the 10 top listed Sri Lankan companies.

With an estimated return of over 108 per cent so far in 2009, the CSE was the second best performing bourse in the world before the jolt.

Mr. Rajaratnam (52) was among six persons arrested on Friday by the U.S. authorities.

The CBSL in a statement here said, “Investigations are yet continuing in relation to the funding allegedly provided by Raj Rajaratnam to the Tamil Rehabilitation Organisation (TRO). Accordingly, any reports that suggest that such investigations are concluded or that Mr. Rajaratnam has been cleared of possible involvement are incorrect and misleading.”

Mr. Rajaratnam is associated with several charities and in September, Sri Lanka Justice Minister Milinda Moragoda had told President Mahinda Rajapaksa that the Galleon group chief was willing to pay $1 million for the rehabilitation of LTTE child-soldiers.

Local media reports quoted Foreign Minister Rohitha Bogollagama as saying that he had objected to the proposal on the ground that the Foreign Ministry had given a dossier to the U.S. Treasury Department’s Directorate of Intelligence on Money Laundering which said Mr. Rajaratnam was involved in LTTE financing.

A report on the Sri Lankan Presidential website has said that Mr. Rajaratnam is one of the wealthiest men in America with an estimated net worth of $1.3 billion and he was a major contributor to the campaigns of Hillary Clinton and also the single largest known U.S. contributor to a charity linked to the LTTE.

Separately, President Rajapaksa at a function in Southern Sri Lanka on Sunday said that even though terrorism had been defeated certain forces which tried to divide the country were still at large. “We are closely monitoring the situation and to defeat this and in the struggles ahead to build a new country we shall not fear to take necessary decisions in the face of any dangers that we may face,” he told the gathering.

“My own son joined the security forces and the children of other high ranking security forces personnel and other officials too joined the ranks. Some local politicians too had embraced these ideas in order to realise their own selfish personal goals at the expense of the country,” he was quoted as saying.