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Hedge fund founder convicted in inside-trade case
NEW YORK — A former Wall Street titan was convicted Wednesday of making a fortune by coaxing a crew of corporate tipsters into giving him an illegal edge on blockbuster trades in technology and other stocks — what prosecutors called the largest insider trading case ever involving hedge funds.
Sri Lanka-born Raj Rajaratnam was convicted of five conspiracy counts and nine securities fraud charges at the closely watched trial in federal court in Manhattan. The jury had deliberated since April 25, and at one point was forced to start over again when one juror dropped out due to illness.
Prosecutors had alleged the 53-year-old Rajaratnam made profits and avoided losses totaling more than $60 million from illegal tips. His Galleon Group funds, they said, became a multibillion-dollar success at the expense of ordinary stock investors who didn’t have advance notice of the earnings of public companies and of mergers and acquisitions.
On Wednesday, Rajaratnam sat at the defense table, a rarity for him at the trial, and stayed motionless as the verdict was read. He will remain free on bail, though now with electronic monitoring, at least until his July 29 sentencing.
Prosecutors said Rajaratnam faces a maximum term of more than 19 years in prison.
U.S. Attorney Preet Bharara said the verdict sends a message that white collar laws apply to everyone, “no matter how much money you have.”
The defendant “was among the best and the brightest, one of the most educated, successful and privileged professionals in the country,” Bharara said in a statement. “Yet, like so many others, he let greed and corruption cause his undoing.”
Outside court, with Rajaratnam at his side, defense attorney John Dowd said there will be an appeal filed with the 2nd U.S. Circuit Court of Appeals. Of the 37 trades that the government sought to prosecute, he added, only 14 made it to trial.
“The score is 23-14, in favor of the defense,” he said. “We’ll see you in the 2nd Circuit.”
The verdict came after seven weeks of testimony showcasing wiretaps of Rajaratnam wheeling and dealing behind the scenes with corrupt executives and consultants. Some of the people on the other end of the line pleaded guilty and agreed to take the witness stand against him.
Authorities said the 45 tapes used in the case represented the most extensive use to date of wiretaps — common in organized crimes and drug cases — in a white-collar case.
The defense had fought hard in pretrial hearings to keep the avalanche of audio evidence out of the trial by arguing the FBI obtained it with a faulty warrant. Once a judge allowed them in, prosecutors put the recordings to maximum use by repeatedly playing them for jurors.
“You heard the defendant commit his crimes time and time again in his own words,” Assistant U.S. Attorney Reed Brodsky said in closing arguments.
“The tapes show he didn’t believe the rules applied to him,” the prosecutor added. “Cheating became part of his business model.”
The wiretaps appeared to play prominently in the jurors’ deliberations: They asked to return to the courtroom countless times so they could listen to them again.
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