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Monday, May 20, 2024 | Back issues
Courthouse News Service Courthouse News Service

$92.8 Million Civil Fine|for Raj Rajaratnam

MANHATTAN (CN) - Fallen Galleon hedge fund tycoon Raj Rajaratnam, sentenced to 11 years in prison for inside trading, must pay $92.8 million in civil penalties, a federal judge said Tuesday. Rajaratnam's fines in his civil and criminal cases come to more than $156.6 million.

In March, prosecutors deployed dozens of wiretaps, three cooperating witnesses and reams of emails and other documents to show that Rajaratnam placed illegal trades in Intel, Blackstone, Goldman Sachs, PeopleSupport, Advanced Micro Devices and other companies.

Defense attorneys countered with a "mosaic theory," claiming that factors other than inside tips went into his trading decisions. The key defense witness for the argument was University of Rochester Professor Gregg A. Jarrell, who, together with his firm, received nearly $1 million in fees from Rajaratnam.

Jurors, unimpressed by the professor's theories, convicted Rajaratnam in May.

Rajaratnam appealed and lost.

Rajaratnam's attorney used Jarrell's statistics in proposed loss calculations before sentencing, but U.S. District Judge Richard Holwell rejected them.

Defense attorneys deferred to Jarrell again in the SEC civil case before U.S. District Judge Jed Rakoff.

"Based on statistical modeling, Professor Jarrell concludes that the profit attributable directly to the non-public information defendant possessed is $22,300,551 ... a figure substantially less than the more than $30 million calculated by the SEC," Rakoff summarized.

The SEC estimated the illegal profits at $33.5 million, and the defense eventually offered a new total of about $30.9 million.

Rakoff choose the defense's last figure, and tripled it.

The total, roughly $92.8 million, is the largest fee ever assessed against a person in an SEC insider trading case, prosecutors said.

Robert Khuzami, director of the SEC's Division of Enforcement, hailed the judge's ruling.

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

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