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Jury Clears Rengan Rajaratnam in Insider Trading Case
http://dealbook.nytimes.com/2014/07...dit_dlbkpm_20140708&nl=business&nlid=11211873
Jury Clears Rengan Rajaratnam in Insider Trading Case
http://dealbook.nytimes.com/2014/07...dit_dlbkpm_20140708&nl=business&nlid=11211873
Rengan Rajaratnam, the younger brother of Raj Rajaratnam, the former billionaire hedge fund manager who was convicted of insider trading in 2011, has been found not guilty of conspiracy to commit insider trading — a stunning blow to federal prosecutors in New York.
The acquittal is the first defeat for Preet Bharara, the United States attorney in Manhattan in his office’s long crackdown on insider trading in the hedge fund industry. The verdict, after just several hours of deliberation on Tuesday, comes after Mr. Bharara’s office had secured 85 convictions and guilty pleas from traders, analysts, industry consultants as well as the hedge fund founded by the billionaire investor Steven A. Cohen.
The younger Rajaratnam, wearing a dark gray suit and dark blue tie, sat stone-faced in the courtroom as the verdict was read and his lawyers patted his back. Later, he was seen giving an exuberant high-five to a colleague.
Initially indicted on seven criminal charges, the case against Mr. Rajaratnam was whittled down by the time it got to the jury. Prosecutors before trial dropped four counts without explanation and just last week the judge overseeing the trial dismissed the two most serious securities fraud charges against him.
In a statement, Mr. Bharara said, “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.”
The verdict by a federal jury of eight women and four men in Lower Manhattan shows the limits of how far prosecutors can go in pursuing cases of illegal trading on Wall Street, although the broader significance of the verdict is not clear. A number of criminal defense lawyers, who did not want to be identified because they have cases pending before Mr. Bharara’s office, said the evidence against Mr. Rajaratnam was not strong.
Last week Judge Naomi Reice Buchwald of Federal District Court in Manhattan dismissed the two insider trading charges against him, leaving the jury to consider simply whether he had conspired with his older brother to commit insider trading. Judge Buchwald dismissed the more serious security fraud charges after determining that no reasonable jury would be able to convict Mr. Rajaratnam of using inside information to make trades in shares of Clearwire in 2008.
Mr. Rajaratnam’s lawyer, Daniel Gitner, had said during the trial there was no evidence that his client knew who his brother’s sources of inside information were, nor whether they had gotten any benefit for passing on that information.
Mr. Bharara and other top lawyers in his office were on edge after Judge Buchwald’s ruling. The day after the judge dismissed the insider trading charges, Richard B. Zabel, the deputy United States attorney for Manhattan, was in the courtroom to hear argument on whether the judge should also dismiss the conspiracy charge – something Judge Buchwald declined to do. On Monday, Mr. Bharara was in the small courtroom to hear some of the closing arguments in the roughly three-week trial.
Until the dismissal of the insider trading charges, the trial of Rengan Rajaratnam had presented little drama. In some respects, it has been a bit of a reprise of the 2011 trial of Raj Rajaratnam, the Galleon Group co-founder, who was convicted and sentenced to 11 years in prison.
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Raj Rajaratnam, the fallen hedge fund billionaire, received the longest prison sentence ever for insider trading in 2011.Credit Emmanuel Dunand/Agence France-Presse — Getty Images
Some of the same wiretapped communications that were played for the jury during Raj Rajaratnam’s trial were also played for the jury in Rengan Rajaratnam’s trial. In one of those taped conversations, the younger Mr. Rajaratnam boasted to his brother that he had a friend working for the consulting firm McKinsey & Company who was a “little dirty.”
Mr. Rajaratnam said his friend, David Palecek, who died of complications from a staph infection in 2010, had recommended that he buy as many shares in Advanced Micro Devices as quickly as possible.
With regard to the conspiracy charge, the jury was asked to consider whether the younger Mr. Rajaratnam conspired with his brother to get information about a potential investment in A.M.D. by the government of Abu Dhabi in the autumn of 2008.
The trades the Galleon Group made in A.M.D. were initially profitable, but because the hedge fund held onto much of its A.M.D. stock for several weeks, the positions ultimately lost money because they took place at the height of the financial crisis when many stocks were falling in price. In light of those facts, it was whether the younger Mr. Rajaratnam would face much prison time even if he was convicted.
It is rare for a judge to dismiss charges in the middle of a trial. Judge Buchwald had said she did it only once before but over the course of the trial she made it clear that she has took exception to some aspects of the case. During a hearing outside the presence of the jury on July 2, she went so far as to say that some of the prosecution’s legal arguments “don’t make any sense.”
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