U.S. Securities and Exchange Commission
Litigation Release No. 21397 / January 29, 2010
SEC v. Galleon Management, LP, et al., Civil Action No. 09-CV-8811 (SDNY) (JSR)
SEC Announces Significant Developments in the Galleon Enforcement Action
SEC Files an Amended Complaint Containing New Allegations of Insider Trading by Rajaratnam and Kumar - The Schemes Now Alleged Generated Over $52 Million in Illicit Profits or Losses Avoided
The SEC announced that The Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, has authorized the SEC to file a Second Amended Complaint ("SAC"), containing new allegations of insider trading in the securities of two additional companies by two defendants in this action, Raj Rajaratnam ("Rajaratnam") and Anil Kumar ("Kumar"). The insider trading now alleged in the Commission's enforcement action cumulatively generated more than $52 million in illicit trading profits or losses avoided. The SAC also recounts details of an illicit payment scheme between Rajaratnam and Kumar, in which Rajaratnam paid Kumar for material non-public information that Rajaratnam then used to trade on behalf of his hedge fund, Galleon Management, LP ("Galleon"), generating almost $20 million in illicit profits. From 2003 to October 2009, Rajaratnam paid Kumar $1.75 to $2 million for inside information, and Kumar reinvested some of those funds in a nominee account at Galleon, earning, together with the profits on such reinvestments, a combined total of roughly $2.6 million for his participation in the scheme. The SAC adds a claim relating to these allegations against Kumar for violation of Section 17(a) of the Securities Act of 1933 ("Securities Act").
The SEC's initial Complaint, filed on October 16, 2009, alleged that six individuals, including Rajaratnam and Kumar, and two hedge funds, engaged in widespread and repeated insider trading that generated over $25 million in profits. Rajaratnam is the founder and a Managing General Partner of Galleon, a New York hedge fund which at the time had billions of dollars under management. When the complaint was filed, Kumar, a friend of Rajaratnam's and a Galleon investor, was a director at the global consulting firm McKinsey & Co. ("McKinsey"). The Commission's complaint alleged that Rajaratnam unlawfully traded based on inside information involving eight different companies. It further alleged that Kumar acquired material non-public information while working as a McKinsey consultant and passed that information to Rajaratnam, who traded on it. The complaint charged Rajaratnam and Kumar with violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Rajaratnam with violations of Section 17(a) of the Securities Act. On November 5, 2009, the SEC filed a First Amended Complaint charging an additional ten individuals and four entities with illegal insider trading that generated nearly $8 million more in unlawful profits.
The SEC Settles Its Claims Against Defendants Choo-Beng Lee and Ali T. Far
The Commission also announced that the Court has approved settlements against defendants Choo-Beng Lee (“Lee”) and Ali T. Far (“Far”), who were managing members of Far & Lee LLC (“Far & Lee”), a Delaware limited liability company. Lee was president and Far was managing member of Spherix Capital LLC (“Spherix”), an unregistered hedge fund investment adviser based in San Jose, California. Lee and Far consented to the entry of a final judgment.
The Commission charged Lee and Far with violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act, alleging:
- Lee obtained inside information about an earnings announcement at Google, which Lee then shared with Far. Lee and Far then traded on such information on behalf of Far & Lee.
- Far obtained inside information about an earnings pre-announcement and earnings announcement at Atheros, which Far then shared with Lee. Far and Lee then traded on such information on behalf of Spherix.
The final judgment to be entered against Lee and Far permanently enjoins them from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act. It also orders them, jointly and severally, to disgorge $1,335,618.17, representing profits gained and/or losses avoided as a result of the conduct alleged, together with prejudgment interest thereon in the amount of $96,385.52. In addition to disgorgement of profits, the judgment orders a civil penalty on defendants Lee and Far, jointly and severally, representing fifty percent of the trading profits/losses avoided, a discount from a one-time penalty, in recognition of their cooperation.
Separately, on December 16, 2009, Far & Lee and Spherix, now defunct or nearly so, were dismissed from the case in exchange for their agreement to cooperate and to cease doing business.
For further information, see Litigation Release No. 21255 (October 16, 2009) and 21284 (November 5, 2009).
See Also: SEC Complaint