Judge Won’t Let Rajaratnam’s Brother Slide

MANHATTAN (CN) - Inside trader Raj Rajaratnam's little brother can't shake similar charges filed against him last year, a federal judge ruled.

U.S. District Judge Naomi Reice Buchwald found that the indictment against Rengan Rajaratnam, the younger brother of Galleon Group founder Raj Rajaratnam, held enough water for him to face criminal charges of insider trading.

While Buchwald found that two securities fraud charges didn't stack up to a conspiracy charge in the younger Rajaratnam's case, she declined to dismiss them pending government action on how to proceed.

She indicated that she would toss those counts unless prosecutors could provide a "logical theory as to how defendant aided and abetted the alleged securities fraud." She gave the government until May 1 to determine how to proceed.

"The indictment tracks the language of the relevant statutes, provides sufficient particulars to apprise defendants of the charges against him and avoid double jeopardy problems, and adequately alleges the essential elements of tippee liability that have developed through case law," Buchwald wrote.

Raj Rajaratnam was sentenced to 11 years in prison in October 2011 after a jury convicted him of insider trading. Rengan Rajaratnam, who worked for his older brother as a portfolio manager at Galleon, was charged in March 2013 with seven counts of conspiracy and securities fraud.

Prosecutors say Raj Rajaratnam got insider information from Rajiv Goel and Anil Kumar on stock of Clearwire Corp. and Advanced Micro Devices, then supplied the information to his younger brother, who traded on the information in his personal brokerage account at Fidelity Investments and other Galleon Group funds.

The younger Rajaratnam's lawyers sought to have the case tossed, arguing that the charges against him failed to "allege the essential elements of the crimes charged," and sought to dismiss two counts as repugnant, claiming the charges failed to show that Rengan Rajaratnam knew that the two insiders who provided his brother with nonpublic information got kickbacks in exchange for the tips.

But Buchwald was not persuaded, finding that the indictment was enough to give Rajaratnam notice of the charges against him.

Rengan Rajaratnam also argued that he didn't know that the tippers were getting benefits for their information, and therefore didn't break the law.

But the issue of whether a tippee must have knowledge of a tipper's personal benefit in order to be held criminally liable has not yet been resolved by the 2nd Circuit, the judge noted.

"In this regard, we fully appreciate that the parties need guidance on the legal issue in advance of trial," she wrote. "If such guidance is not available sufficiently before trial, the parties will be informed of this court's view on the pending issue."

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