U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21284 / November 5, 2009
Securities and Exchange Commission v. Galleon Management, LP, Raj Rajaratnam, Rajiv Goel, Anil Kumar, Danielle Chiesi, Mark Kurland, Robert Moffat, New Castle Funds LLC, Roomy Khan, Deep Shah, Ali T. Far, Choo-Beng Lee, Far & Lee LLC, Spherix Capital LLC, Ali Hariri, Zvi Goffer, David Plate, Gautham Shankar, Schottenfeld Group LLC, Steven Fortuna, and S2 Capital Management, LP, Civil Action No. 09-CV-8811 (SDNY) (JSR)
SEC Charges 13 Additional Individuals and Entities in Galleon Insider Trading Case
On November 5, 2009, the Securities and Exchange Commission (Commission) filed an amended complaint in the United States District Court for the Southern District of New York in its insider trading action against billionaire Raj Rajaratnam and his New York-based hedge fund advisory firm Galleon Management LP. The SEC's amended complaint names thirteen new defendants and alleges insider trading that cumulatively generated more than $33 million in illicit gains. Among those identified today by the SEC were three hedge fund managers, three professional traders at Schottenfeld Group, a New York-based trading firm, and a senior executive at Atheros, a California-based developer of networking technologies.
On October 16, the SEC filed a complaint in federal court in Manhattan alleging, among other things, that Rajaratnam had tapped into his network of friends and close business associates to obtain insider tips and confidential information about corporate earnings or takeover activity at several companies, including Google, Hilton, Intel and Polycom. He then used the non-public information to illegally trade on behalf of Galleon.
Today's amended complaint names some of the sources for the insider tips and confidential information to Rajaratnam and Galleon, and identifies other traders who traded on the basis of the same inside information or other newly identified inside information coming from various sources.
The SEC's initial complaint, in addition to Rajaratnam and Galleon, had charged:
- Danielle Chiesi of New York, N.Y. - a portfolio manager at New Castle Funds.
- Rajiv Goel of Los Altos, Calif. - a managing director at Intel Capital, an Intel subsidiary.
- Anil Kumar of Saratoga, Calif. - a director at McKinsey & Company.
- Mark Kurland of Mount Kisco, N.Y. - a senior managing director and general partner at New Castle.
- Robert Moffat of Ridgefield, Conn. - a senior vice president at IBM.
- New Castle Funds LLC - a New York-based hedge fund
Today's amended complaint adds the following new defendants:
- Roomy Khan of Fort Lauderdale, Fla. - hedge fund consultant.
- Deep Shah of Mumbai, India - former analyst at Moody's.
- Ali Far of Saratoga, Calif. - co-founder and managing partner at Far & Lee and Spherix Capital.
- Choo-Beng Lee of San Jose, Calif. - co-founder and managing partner at Far & Lee and Spherix Capital.
- Far & Lee, LLC - California-based trading entity.
- Spherix Capital - California-based hedge fund.
- Ali Hariri of San Francisco, Calif. - a vice president at Atheros Communications.
- Zvi Goffer of New York, N.Y. - former proprietary trader at Schottenfeld.
- David Plate of New York, N.Y. - former proprietary trader at Schottenfeld.
- Gautham Shankar of New Canaan, Conn. - former proprietary trader at Schottenfeld.
- Schottenfeld Group LLC - New York-based proprietary trading firm.
- Steven Fortuna of Westwood, Mass. - co-founder and principal of S2 Capital.
- S2 Capital Management, LP - New York-based hedge fund
The amended complaint alleges trading on inside information concerning the following events or transactions:
- Khan obtained inside information about earnings announcements at Polycom and Google from unnamed sources, as well as takeover announcements of Hilton and Kronos from Shah. Khan then traded on such information and allegedly provided some or all of this information to Rajaratnam, who used it to trade on behalf of Galleon, and to an unnamed person identified in the complaint as Tipper X who traded on the information and also passed it along to Shankar. Shankar, in turn, traded on this information and passed some or all of it along to his Schottenfeld colleagues including Goffer and Plate, each of whom then traded on the basis of the information.
- Lee obtained inside information about earnings announcement at Google from the same source as Khan, which Lee then shared with Far. Lee and Far then traded on such information on behalf of Far & Lee LLC.
- Goel provided inside information to Rajaratnam about certain Intel quarterly earnings and a pending joint venture concerning Clearwire Corp., in which Intel had invested. Rajaratnam then used this information to trade on behalf of Galleon. As payback for Goel's tips, Rajaratnam, or someone acting on his behalf, executed trades in Goel's personal brokerage account based on inside information concerning Hilton and PeopleSupport, which resulted in nearly $250,000 in illicit profits for Goel.
- Kumar obtained inside information about pending transactions involving AMD and two Abu Dhabi-based sovereign entities, which he shared with Rajaratnam. Rajaratnam then traded on the basis of this information on behalf of Galleon.
- Chiesi obtained inside information from an executive at Akamai Technologies and traded on the information on behalf of New Castle. Chiesi also passed on the inside information to Rajaratnam who then traded on behalf of Galleon, and to Fortuna who traded on behalf of S2 Capital.
- Chiesi obtained inside information about earnings announcements at Sun Microsystems and IBM from Moffat. Chiesi then traded on such information on behalf of New Castle. In addition, Chiesi obtained inside information from Moffat and an AMD executive concerning AMD's pending transactions with the two Abu-Dhabi sovereign entities, which Chiesi shared with Kurland. Chiesi and Kurland traded based on that information on behalf of New Castle. Chiesi also tipped Fortuna to the AMD information and Fortuna traded based on the information on behalf of S2 Capital.
- Far obtained inside information about earnings pre-announcement and earnings announcement at Atheros from Hariri, which Far then shared with Lee. Far and Lee then traded on such information on behalf of a Spherix Capital fund.
The SEC's complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, except for Shah, Kumar, Moffat, Goffer and Plate violations of Section 17(a) of the Securities Act of 1933 and. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The complaint also seeks to permanently prohibit Goel, Moffat and Hariri from acting as an officer or director of any registered public company.