Indian-Americans Face Insider Trading Charges

Two prominent Indian-Americans, along with a Sri Lanka born billionaire, have been charged in what U.S. prosecutors say is the biggest insider-trading case in a generation. The scandal is now reverberating in South Asia, particularly the island nation of Sri Lanka.

It is estimated that billionaire Raj Rajaratnam, the founder of hedge fund Galleon Group under arrest in New York on charges of insider trading, has invested more than $150 million in Sri Lankan shares. Even rumors of his trades can send the market up or down. Born in Sri Lanka, he was educated at the prestigious Wharton business school in Pennsylvania and went to set up a hedge fund for boutique investment bank Needham. The hedge fund was spun off with Mr Rajaratnam at its head in 1997. Galleon was well known for its extensive research reports, according to the New York Times, and for having many senior technology executives as its investors.

In 2007, there was a minor scandal involving accusations of i nsider trading against Pakistani-American Atiq Raza, but it was settled out of court with the SEC when Mr. Raza agreed to pay $3 million fine. Under the terms of the agreement, Mr. Raza was also barred from serving as an officer or director of a public company for five years, and he was permanently enjoined from future violations of the federal securities laws.

The Wall Street Journal reports that fears about the future of Rajaratnam's and Galleon's investments in Sri Lanka caused a major selloff Monday. After losing about 3% during early trading, the Colombo Stock Exchange benchmark All-Share Price Index ended the day at 3082.91, down 1.6%. Shares in which Mr. Rajaratnam or Galleon hold major stakes were among the biggest losers.

Mr Rajaratnam is estimated to be worth about $1.3bn by Forbes magazine. Galleon, the hedge fund he founded, had managed up to $7bn in assets. He was investigated by the Federal Bureau of Investigation in 2007 for allegedly funding the T amil Tiger rebel movement in Sri Lanka, the Central Bank of Sri Lanka said on Monday.

He was among several wealthy Sri Lankans who donated to the US-based charity, the Tamil Rehabilitation Organization, which may have been funneled to the Tamil Tigers.

In addition to Sri Lankan Raj Rajaratnam, 52, the accused include two Indian-Americans, Rajiv Goel, 51, of Los Altos, of Intel's treasury department, and Anil Kumar, 51, of Santa Clara, an executive at the global consulting group McKinsey & Co. Both were rising stars in the high-tech constellation of Silicon Valley. Locally established and internationally connected, the two men's work and reputations stretched to India and back, as they moved in the rarified air of global big business, according to a report in San Jose Mercury News. Kumar and Goel are both charter members of TIE, the Indus Entrepreneur, an organization of mostly Indian-Americans in Silicon Valley.

Goel and Kumar supplied information about their portfolio firms or clients to co-conspirators, according to the complaint, who in turn made profitable trades. Kumar was arrested in New York, then later released on a $5 million bond, while Goel appeared briefly before a federal judge in San Francisco Friday before reportedly posting a $300,000 cash bail and a $100,000 bond. Both of them have been put on leave by their respective firms. The investigation is likely to lead to insiders at several other firms beyond Intel, IBM and McKinsey.

In India, where Kumar had been heavily involved in the Indian School of Business, embarrased officials announced he had voluntarily taken an indefinite leave of absence from the board because of the scandal.

And like Kumar, Goel's Indian roots were deep. Before joining Intel, he worked in finance for one of India's largest business house, the Aditya Birla Group. With an MBA from the Wharton School, he also served as a corporate banker with Bank of America in San Francisco and managed a large portfolio of securities for Metropolitan Life out of New York, according to Mercury News.

The lead prosecutor Preetinder S. Bharara, the US Attorney for the Southern District of New York, also of Indian descent, said “This is not a garden-variety insider trading case." He alleged that the scheme made more than $20 million in illegal profits since 2006. According to the NY Times, Bharara, 40, was born in Ferozepur, India, and he was an infant when his parents immigrated to the United States in 1970. He grew up in Monmouth County, N.J., and graduated from Harvard in 1990 and Columbia Law School in 1993. A rising star in the Democratic Party, Bharara supervises over 200 lawyers who prosecute high-profile cases in New York City.

There have been other recent white collar crime cases against Indian-Americans. Earlier this month, an Indian-American lawyer in Los Angeles, Sandeep Baweja, 39, agreed to plead guilty to two felony charges relating to a scheme where he took more than $2 million awarded in a class action suit and lost it all on the stock market.

Last year, Vijay Taneja, an Indian-American investor and producer of Bollywood movies, was convicted of mortgage fraud in the United States.

This is, indeed, a sad day for many people of South Asian descent in the United States, particularly in Silicon Valley. Let's hope the accused receive a fair trial amidst the wave of negative publicity surrounding the case.


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