MANHATTAN (CN) - Prosecutors recorded Raj Rajaratnam's younger brother telling him, "Everybody is a scumbag," as the little brother described his plans to corrupt another man in the inside-trading scheme, according to a federal indictment of Rengan Rajaratnam.
Federal prosecutors and the SEC charged Rajarengan ('Rengan') Rajaratnam with making more than $3 million from his imprisoned brother's inside-trading scheme.
A federal grand jury charged Rajarengan ('Rengan') Rajaratnam, 42, with six counts of securities fraud and one count of conspiracy. The SEC filed a parallel complaint.
The federal indictment includes some damning details, apparently gained from wiretaps.
In one conversation, Rengan tells his brother Raj about his efforts to get an illegal, inside source at McKinsey & Co. Rengan, referring to the man he is trying to corrupt, tells his brother: "Scumbag, everybody is a scumbag," according to the indictment.
SEC acting director of enforcement George Canellos said in a statement: "Our complaint against Rengan Rajaratnam tells a sad tale of a man who followed his brother down an illegal path of greed to its inevitable conclusion," Raj Rajaratnam was fined $150 million and is serving an 11-year sentence in federal prison for inside trading.
Both complaints against Rengan Rajaratnam accuse him of using inside tips from his brother to trade illegally in shares of Polycom, Hilton Hotels, Clearwire Corporation, Akamai Technologies, and AMD.
"For example, in July 2007, he made substantial profits trading Hilton stock in his personal account based on a timely insider trading tip from Raj Rajaratnam that Hilton was about to be taken private. Rengan Rajaratnam quickly loaded up on Hilton stock, and the price of Hilton shares jumped more than 25 percent after the news became public. Rengan Rajaratnam cashed in his recently acquired position for an illicit profit of more than $675,000," the SEC said in its statement.
The criminal complaint is more lurid, with details apparently garnered from wiretaps on Raj Rajaratnam's phones.
For example, it claims that Rengan called his brother at 8:22 p.m. on March 25, 2008 to complaint about a Wall Street Journal article. "Referring to the Intel inside information, Rengan Rajaratnam said to Raj Rajaratnam, 'We're fucked man' because the 'Clearwire stuff' had 'just hit the Wall Street Journal.' Rengan Rajaratnam explained that the Journal article was 'short on details, but they kind of say, you know, they're looking to raise as much as three billion, but they don't have any of the equity split. But they named ... Comcast, they named Time Warner, Clearwire, Sprint.' Raj Rajaratnam replied 'O.K., shit.' Rengan Rajaratnam then said, 'So I don't know how much you got in today,' referring to Raj Rajaratnam's purchases of Clearwire stock that day, 'but I think [Clearwire's share price' is gonna rip [rise sharply] tomorrow.'
"In fact, Clearwire's share price did rise sharply in response to the Wall Street Journal article." (Ellipses and brackets in indictment.)
Later, the 22-page indictment describes Rengan Rajaratnam's attempt to get a source at McKinsey to feed him illegal, inside information. Rengan then called his brother Raj to tell him what he was doing, according to the indictment.
"Specifically, on August 15, 2008, at approximately 6:28 p.m., Rengan Rajaratnam told his brother that, in his conversation with McKinsey Partner A earlier that day, Rengan Rajaratnam was trying to 'pump information out of my friend.' Raj Rajaratnam replied, 'I understand what you're doing[.]' A few seconds later, referring to McKinsey Partner A, Rengan Rajaratnam said, 'Scumbag, everybody is a scumbag.'" (Brackets in indictment.)
Prosecutors seek forfeiture of Rengan Rajaratnam's assets, and penalties.
The SEC said that Rengan Rajaratnam is the 33rd defendant it has charged in Raj Rajaratnam's inside-trading scheme.
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