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Billionaire Hedge Fund Exec Convicted of Insider Trading

MANHATTAN (CN) - After 12 days of deliberations, a federal jury on Wednesday convicted Galleon co-founder Raj Rajaratnam of all 14 counts with which he was charged for masterminding a $63 million insider-trading scheme.

Rajaratnam faces a maximum of 205 years in prison at sentencing, but a prosecutor said the actual guideline range will likely be between about 15 to 20 years. The hearing is scheduled for July 29 at noon. Until then, Rajaratnam, who was indicted in late 2009, will remain at home monitored electronically.

More than 20 of the 26 alleged co-conspirators investigated in the scheme have pleaded guilty to what prosecutors have called the largest hedge-fund insider-trading scheme in history.

"It's a huge victory for the government," Pace University Professor Bennett Gershman, a former prosecutor and defense attorney, told Courthouse News. "It's the biggest victory they've ever gotten."

Since early March, prosecutors deployed dozens of wiretapped phone conversations, three cooperating witnesses and reams of e-mails and other documentation to show that Rajaratnam placed illegal trades in companies including Intel, Akamai, Blackstone, Goldman Sachs, PeopleSupport, Advanced Micro Devices and others.

For more than two weeks, the jury mulled this evidence along with defense claims that Rajaratnam got his information from a "mosaic" of legitimate sources including hundreds of news articles and analyst reports.

Deliberations hit a bump last week when one juror, who needed to step down for a medical reason, was replaced with an alternate, forcing them to start anew.

As buzz spread that a verdict was imminent Wednesday morning, defense attorney John Dowd comforted Rajaratnam, patting him on the back as they entered the courtroom. Two of the three prosecutors sat in apprehensive anticipation with their chins resting on their cupped hands. Reporters, attorneys and other spectators filled the packed courtroom.

Jurors filed into their seats without making eye contact with reporters or Rajaratnam.

A clerk read their 14 straight "guilty" counts, and each confirmed the accuracy after the recitation.

After the verdict was entered, Assistant U.S. Attorney Jonathan Streeter insisted that Rajaratnam be remanded to prison immediately, saying there is "obviously a risk of flight."

Besides having "tremendous resources" to flee, Rajaratnam has citizenship by birth in Sri Lanka, a country that never has extradited a citizen to America, Streeter said. In addition, Rajaratnam has property in Singapore, London and Canada, and has "enormous assets to support his lifestyle overseas."

Dowd countered that Rajaratnam had cooperated throughout the trial, has strong family ties in America and had faith in the future of his appeal, based on the propriety of the FBI's wiretaps.

U.S. District Judge Richard Holwell allowed Rajaratnam to keep his freedom for now, provided he stay under electronic monitoring.

Professor Gershman predicted Rajaratnam would lose any appeal.

"I don't see any significant appellate evidence here. ... Wiretaps have been around a long time," Gershman said. "The fact is, if you have wiretaps, you win your case."

One of those wiretaps included a tip about Goldman Sachs' quarterly performance from "somebody on the board." Prosecutors say his tipper on that stock is Rajat Gupta, a Goldman Sachs board member and prominent investor. Gupta is currently facing civil charges from the Securities and Exchange Commission, which he countersued for alleged due-process violations.

"It's got to put a scare, a real scare in Wall Street," Gershman said.

The closely watched case has even led some traders to wager on Rajaratnam's fate through inTrade, which placed 90 percent odds of conviction.

Manhattan U.S. Attorney Preet Bharara, who sat in the courtroom several times during the trial, noted in a statement how far Rajaratnam had fallen.

"Raj Rajaratnam, once a high-flying billionaire and hedge fund manager, is now a convicted felon, 14 times over," Bharara said. "Rajaratnam was among the best and the brightest - one of the most educated, successful and privileged professionals in the country. Yet, like so many others recently, he let greed and corruption cause his undoing."

What led 12 jurors to decide on Rajaratnam's guilt following more than two weeks of consideration will remain a mystery.

Although the press often speak to jurors after a case with massive public interest, Judge Holwell - who conducted much of the trial in sidebars and sealed documents - forbade jurors from revealing anything about deliberations. "They remain secret," Holwell said.

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