M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, February 9, 2010

More Galleon Scalps

Galleon takes yet another scalp.  This one from Rajiv Goel - a 1993 Wharton classmate of Raj Rajaratnam and former executive at Intel.  From the US Attorney’s Press Release announcing the guilty plea: 

Specifically, in April 2007, GOEL obtained Inside Information regarding Intel's earnings announcement for the quarter ending in March 2007 from a colleague who worked at Intel. GOEL provided this Inside Information to RAJARATNAM on Friday, April 13, 2007, at which time Galleon Tech held a short position of approximately 1,150,000 shares of Intel common stock (worth approximately $23.5 million). Intel was scheduled to announce its quarterly earnings on Tuesday, April 17, 2007.

Between April 13 and April 17, 2007, after receiving the Inside Information from GOEL, RAJARATNAM caused Galleon Tech to cover its entire short position in Intel common stock and to purchase approximately 1.72 million additional shares of Intel common stock (worth approximately $36 million). These trades changed Galleon Tech's position in Intel common stock from short approximately $23.5 million to long approximately $36 million -- a swing of approximately $59.5 million -- in the three business days preceding Intel's earnings announcement. In addition, on April 17, 2007, RAJARATNAM also caused Diversified to purchase approximately 250,000 shares of Intel common stock.

Goel also provided Rajaratnam with information related to a pending Intel joint venture.  According to the complaint from the SEC, Rajaratnam bought stock on Goel’s behalf and presumably as a payoff for the information that Goel provided.

Galleon is a continuing object lesson for a new generation of investors and Rajaratnam is fast becoming the Ivan Boeksy of this generation.  Of course, the US attorney probably got lucky here.  Without a wiretap, both of the charges against Goel could have been hard to make stick. 

First, the trading in advance of the announcement of the Intel joint venture:  Rajaratnam received the information and bought months in advance of the announcement.  That’s not the kind of thing that gets easily noticed and there are plenty ways to explain that away if pressed.

Second, the trading in advance of an earnings release.  Well, the timing of earnings releases are like the phase of the moon – they’re highly predictable.  And, when pressed it should be relatively easy for an investor like Rajaratnam to make a case that he had been following Intel for some time and could justify a purchase/sale prior to earnings.

On the other hand, if you’re going hand out inside information business school classmates about the company you’re working for, rest assured that the SEC knows where you went to school.  Also, if your business school buddy is buying shares of Hilton in your name and you’ve not sent him a check, it doesn’t take a genius to figure out what’s going on.




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