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Originally published Thursday, March 21, 2013 at 6:56 PM

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Brother of convicted hedge-fund founder indicted

Rengan Rajaratnam, 42, of Manhattan, was charged with conspiracy to commit securities fraud and six counts of securities fraud for using inside information from his brother, Raj Rajaratnam, who is serving an 11-year prison sentence for insider trading.

The Associated Press

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NEW YORK — The brother of a jailed one-time billionaire hedge-fund boss has been charged with conspiring with his brother to cheat on Wall Street and earn nearly $1.2 million illegally, federal authorities announced Thursday.

Rengan Rajaratnam, 42, of Manhattan, was charged in an indictment returned Wednesday and unsealed a day later with conspiracy to commit securities fraud and six counts of securities fraud. He was not immediately arrested.

His brother, Raj Rajaratnam, is serving an 11-year prison sentence after he was convicted in 2011 of earning up to $75 million by swapping secrets about public companies with other hedge-fund managers and friends at public companies.

“As alleged, Rengan Rajaratnam and his brother shared more than DNA, they also shared a penchant for insider trading,” U.S. Attorney Preet Bharara said. “Along with his brother Raj, Rengan Rajaratnam was allegedly at the heart of an insider-trading scheme that swept up an unprecedented number of people in its web of corruption, and with his indictment, we are one step closer to closing that chapter.”

George Venizelos, head of the New York FBI office, said Rengan Rajaratnam’s “career arc paralleled his brother’s.

“He followed in Raj’s footsteps by obtaining an MBA from a top-flight business school. He went to work for Raj at Galleon. As alleged in the indictment, Rengan also engaged in the same illegal conduct as Raj. He reaped the benefit of insider information obtained by Raj, and he planned to reciprocate by cultivating his own source of inside information. Now Rengan’s career arc has descended to the same place his brother’s did less than four years ago: defendant.”

Phone and email messages left for his attorney were not immediately returned.

In a separate action, civil charges were brought against Rengan Rajaratnam by the Securities and Exchange Commission (SEC).

According to the indictment in U.S. District Court in Manhattan, the Rajaratnam brothers, who are from Sri Lanka, conspired in 2008 to trade on insider information involving Bellevue-based Clearwire and Advanced Micro Devices.

It said the inside information concerning Clearwire came from Rajiv Goel, a former Intel employee who tipped Raj Rajaratnam about plans for Intel to invest $1 billion in Clearwire in return for 10 percent equity. Prosecutors said Raj Rajaratnam then shared the inside information with his brother.

The indictment alleges the information originated with Anil Kumar, who in 2008 was a partner at management consultants McKinsey. Goel and Kumar both pleaded guilty in deals with the government and received probationary sentences in return.

In its civil complaint, the SEC alleged a wider conspiracy between the brothers, saying that from 2006 to 2008, Rengan Rajaratnam received inside information from his brother and reaped more than $3 million in illicit gains for himself and hedge funds he managed at Galleon and Sedna Capital Management, a hedge-fund advisory firm he co-founded.

It said Rengan Rajaratnam traded on inside information and was an active participant in his brother’s scheme to cultivate highly placed sources and extract confidential information to cheat against other traders.

“Our complaint against Rengan Rajaratnam tells a sad tale of a man who followed his brother down an illegal path of greed to its inevitable conclusion,” said George Canellos, acting director of the SEC’s Division of Enforcement.

Added Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, “Rengan Rajaratnam profited handsomely from his brother’s insider-trading activities, and he may have believed he wouldn’t have to pay a price for his involvement.”

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