NEW YORK (Reuters): US prosecutors said a Morgan Stanley banker leaked information regarding an upcoming takeover that ultimately was passed on to Galleon Group LLC founder Raj Rajaratnam, who faces insider trading charges.
Prosecutors also unveiled on Friday a new indictment against Rajaratnam, which added a new securities fraud count and named seven additional stocks that were part of an alleged conspiracy involving Rajaratnam to commit securities fraud.
Among the newly named stocks is Goldman Sachs Group Inc, about which the government said Rajaratnam leaked information in October 2008 to a co-conspirator.
Jim McCarthy, a spokesman for Rajaratnam, declined to comment.
Prosecutors accuse the Sri Lankan-born Rajaratnam of being involved in a series of illegal trades that let him reap $45 million in proceeds. He is the central figure in a widening government probe into insider trading, including hedge funds such as Galleon. Rajaratnam has denied wrongdoing.
According to a 20 January letter from prosecutors to Rajaratnam’s lawyers, the Morgan Stanley banker around May 2006 leaked details to someone of Advanced Micro Devices Inc’s interest in buying ATI Technologies Inc, and that news of a pending takeover was later funnelled to Rajaratnam.
The letter blacks out the identities of the banker and the person who allegedly tipped Rajaratnam.
AMD, the world’s second-largest computer chipmaker, on 24 July 2006 announced it would buy ATI, a Canadian graphics chipmaker, for about $5.4 billion. That valued ATI at a roughly 24 per cent premium over its closing price the previous Friday.
Morgan Stanley spokesman Pen Pendleton said the banker has been put on leave, and that the company is cooperating with the government’s investigation.
Prosecutors in Manhattan previously alleged that Anil Kumar, a former McKinsey & Co. consultant, also leaked details of AMD’s interest in ATI to Rajaratnam.
Kumar pleaded guilty last January to fraud and conspiracy charges and agreed to cooperate with prosecutors. He said at the time that Rajaratnam paid him $1.75 million for tips.
Rajaratnam’s lawyers attached the letter referring to the Morgan Stanley banker as an exhibit to a request to stop a government subpoena of documents and other information from Galleon.
Prosecutors had asked US District Judge Richard Holwell on 13 January for permission to serve the subpoena.
Holwell also oversees the government’s fraud and conspiracy case against Rajaratnam, expected to go to trial on Feb. 28.
A US Securities and Exchange Commission civil case against Rajaratnam is slated for trial in April.
The new securities fraud count in the indictment concerns Rajaratnam’s alleged purchase of shares of PeopleSupport Inc on the basis of inside information in July 2008, one week before the outsourcing company agreed to be acquired.
In a move that could add pressure to delay the criminal trial, Rajaratnam’s lawyers said they “will move forthwith” to exclude evidence relating to stocks they believe prosecutors only recently decided to add to the case.
They cited “the extreme lateness of these disclosures and the severe prejudice caused to the defence’s trial preparations” to justify the exclusion.
The amended indictment reflects Wednesday’s guilty plea by former co-defendant Danielle Chiesi, who once worked for New Castle Funds LLC. She admitted to conspiracy charges.
The case is U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 09-01184.
Raj is the last man standing: Report
NEW YORK: Former hedge fund trader Danielle Chiesi has plead guilty to passing inside information to Galleon Group founder Raj Rajaratnam that makes him the “last man standing” in the largest insider trading case in the US history.
Five of the six persons arrested in October 2009 in this case have now pleaded guilty and Rajaratnam (52) is set to go on trial on 28 February, The New York Post reported.
Chiesi, who pleaded guilty this week to three counts of conspiracy to commit securities fraud, told Manhattan Federal Court Judge Richard Holwell, “I am deeply ashamed by what I did ...I ruined a 20-year career in my field that I truly loved.”
Rajaratnam faces multiple charges of conspiracy and security fraud and is accused of making illegal profits of almost $49 million.
This is the first case to use authorised wiretaps.
Chiesi admitted to sharing confidential information with former boss and co-defendant Mark Kurland and obtaining similar data from IBM executive Robert Moffat, on several stocks, including those of the IT giant.
Other defendants, who were arrested in October 2009 and have pleaded guilty, are: Kurland, Moffat, Intel Executive Rajiv Goel and Anil Kumar, a former Director at McKinsey & Co.
Chiesi faces up to 15 years in prison for her crimes but her she may get one to two years because of her plea deal.