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US billionaire, others held over record insider trading.

Billionaire hedge fund founder Raj Rajaratnam and executives from some of the most prestigious US companies have been charged with the largest hedge fund insider-trading scheme ever.

Investigators said they used court-approved telephone wire taps for the first time in a Wall Street insider trading case, sending shivers through the hedge fund industry which has traditionally picked up and shared trading tips to make big profits.

At the center of the case are Rajaratnam, his Galleon hedge fund and two executives from hedge fund New Castle, which was a unit of Bear Stearns Asset Management before Bears Stearns Co collapsed in 2008, but is still in operation.

Three executives from major American companies IBM, top consulting firm McKinsey & Co and the venture capital arm of chip giant Intel Corp are also facing criminal charges.

"This is not a garden-variety insider trading case," Preet Bharara, the U.S. Attorney for Manhattan, said at a news conference. He said the scheme made more than $20 million in illegal profits over several years.

One of the criminal complaints accuses Rajaratnam 52, considered the richest Sri Lankan in the world, of conspiring with Intel Capital treasury department managing director Rajiv Goel and Anil Kumar, a director of McKinsey & Co.

The alleged offenses took place over three years starting in January 2006. Galleon had as much as $7 billion under management, the complaint said. Earlier, a US magistrate judge in New York said Rajaratnam may be released on a $100 million personal recognizance bond secured by $20 million in cash and property. In a brief appearance, Rajaratnam sat in court with his arms folded.

The judge restricted his travel to a radius of 110 miles from Manhattan and Rajaratnam, a citizen of both Sri Lanka and the US, surrendered travel documents.

A prosecutor argued that Rajaratnam was a flight risk, but his lawyer Jim Walden said: "A court's going to learn there's a lot more to this case.

There is no way that this man is going to flee." A second criminal complaint accused three other people - New Castle portfolio manager Danielle Chiesi, New Castle general partner Mark Kurland and Robert Moffat, a senior vice president in the IBM technology group - of insider trading crimes and earning millions of dollars in illegal profits. "It shows that we are targeting white-collar insider trading rings with the same powerful investigative techniques that have worked so successfully against the mob and drug cartels," Bharara said.

All six were charged with securities fraud and conspiracy in two criminal complaints filed in US District Court in Manhattan. Kumar was permitted to be released on a $5 million bond, Kurland on a $3 million bond, and Moffat and Chiesi on a $2 million bond. In California, Goel posted $300,000 cash for bail. The six were also charged in a separate civil complaint by the US Securities and Exchange Commission (SEC).

The SEC said the accused traded on insider information from 10 companies.

The companies included Hilton Hotels Corp, Google, IBM, Advanced Micro Devices and several other companies. Securities fraud charges carry possible maximum prison sentences of up to 20 years.

Rajaratnam, born into a family of well-to-do Tamils in the Sri Lankan capital of Colombo, is one of the largest investors on the Colombo Stock Exchange. An Intel spokesman said Goel, 51, was placed on administrative leave recently.

He said Intel was not aware of the case until just now and has not been contacted by authorities. Kumar, also 51, was on a leave of absence, a McKinsey spokeswoman said.

She said the firm "was looking into the matter urgently." Chiesi, 43, worked for New Castle, an equity hedge fund group of Bear Stearns Asset Management before Bear Stearns crumbled in March 2008, according to the complaint. Kurland, 60, was a senior managing director of BSAM, the same unit that ran two funds that suffered fatal mortgage market losses in 2007. Moffat, 53, was group executive of IBM's systems and technology group and a 31-year veteran of the company. Moffat was accused of passing insider information about an IBM deal with Advanced Micro Devices Inc.

The Galleon case also dealt another black eye for credit rating firm Moody's Corp Moody's Investors Service, one of the major rating agencies that have been strongly criticized for their role in the global credit crisis.

An analyst at Moody's who was involved with evaluating Hilton passed on insider information that Hilton would be acquired by Blackstone Group and that Hilton would likely announce the acquisition before July 4, 2007, according to one complaint.

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Title Annotation:hedge fund founder Raj Rajaratnam
Publication:Saudi Economic Survey
Geographic Code:1USA
Date:Oct 27, 2009
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