Rajaratnam slapped with USD 92 mn penalty in insider trading

Judge Jed Rakoff of the US District Court for the Southern District of New York entered his final judgement yesterday finding Rajaratnam liable for a civil monetary penalty of USD 92,805,705, the largest penalty ever assessed against an individual in an insider trading case of Securities and Exchange Commission.

In the criminal case against Rajaratnam, the Sri Lankan hedge fund founder was ordered to pay more than USD 53.8 million in forfeiture of illicit gains and USD 10 million in criminal fines. The total amount of monetary sanctions imposed on Rajaratnam in the civil and criminal cases now stands at more than USD 156.6 million.
In imposing the fine, Rakoff said such a severe civil penalty will bring home the message that insider trading should be "a money-losing proposition" for anyone who plans to engage in it.

He said the penalty is further justified given Rajaratnam's networth which "considerably exceeds" the penalties in the criminal case. "When to this is added the huge and brazen nature of Rajaratnam's insider trading scheme, which, even by his own estimate, netted tens of millions of dollars and continued for years, this case cries out for the kind of civil penalty that will deprive this defendant of a material part of his fortune," Rakoff said in his judgement.

Rajaratnam, described by prosecutors as the "modern face of insider trading", was sentenced to 11 years in prison last month for his role in the massive insider trading scheme, in which he made millions of dollars in illegal profits through inside information passed on to him, including by Indian American Wall Street tycoon Rajat Gupta.

Federal prosecutors and the SEC have also charged Gupta with securities fraud. Gupta, accused of illegally tipping Rajaratnam while serving on the boards of Goldman Sachs and Procter and Gamble, will face trial next year.

The SEC had brought civil charges against Rajaratnam in October 2009, alleging that he and several others including his New York-based hedge fund advisory firm Galleon engaged in a massive insider trading scheme.

"The penalty imposed today reflects the historic proportions of Raj Rajaratnam's illegal conduct and its impact on the integrity of our markets," Director of the SEC's Division of Enforcement Robert Khuzami said.

The SEC's action against Rajaratnam and Galleon was part of a larger insider trading probe that has resulted in civil charges against a total of 29 individuals and entities including hedge fund advisers, Wall Street professionals, and corporate insiders.

The SEC also filed new insider trading charges against Rajaratnam alleging that he caused various Galleon funds to trade based on Gupta's inside information, generating illicit profits and avoiding losses of more than USD 23 million.

This insider trading action against Rajaratnam remains pending before Rakoff.