Rajaratnam acquittal shows indirect insider trading case challenge

Fri Jul 11, 2014 7:04am EDT
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By Nate Raymond and Joseph Ax

NEW YORK (Reuters) - The acquittal on Tuesday of the younger brother of convicted hedge fund titan Raj Rajaratnam suggests prosecutors will have a tougher time pursuing people accused of trading on inside information they received indirectly.

Roughly a third of the insider trader defendants charged by Manhattan U.S. Attorney Preet Bharara since 2009 are alleged so-called "remote tippees". According to prosecutors, in such cases the defendant, or "tippee," never directly talks to the insider, instead getting information from an intermediary.

After the case of former Galleon Group fund manager Rengan Rajaratnam, prosecutors may reevaluate how they build similar cases, said James Cox, a law professor at Duke University.

Prosecutors said Rengan Rajaratnam, a fund manager at his brother's Galleon, engaged in insider trading, receiving tips from Raj Rajaratnam who was speaking to insiders on two deals.

But jurors and the judge acquitted the younger brother, ending an 81 conviction streak by Bharara's office that included Raj Rajaratnam's own guilty verdict in 2011.

"This case probably just didn't have enough of the i's dotted and t's crossed to make the connections," Cox said.

Of the 88 people charged over insider trading by Bharara since 2009, 31 were at least one step removed from the initial tipper, including at least three of the office's six outstanding cases, according to Reuters' analysis.


Rengan Rajaratnam (L) exits the U.S. District Court for the Southern District of New York with his lawyer Daniel Gitner in Lower Manhattan July 8, 2014.  REUTERS/Brendan McDermid