Sunday, January 31, 2010
The United States District Court for the Southern District of New York has authorized the SEC to file a Second Amended Complaint ("SAC"), containing new allegations of insider trading in the securities of two additional companies by Raj Rajaratnam ("Rajaratnam") and Anil Kumar ("Kumar"). The insider trading now alleged in the Commission's enforcement action cumulatively generated more than $52 million in illicit trading profits or losses avoided. The SAC also alleges details of an illicit payment scheme between Rajaratnam and Kumar, in which Rajaratnam paid Kumar for material non-public information that Rajaratnam then used to trade on behalf of his hedge fund, Galleon Management, LP ("Galleon"), generating almost $20 million in illicit profits. From 2003 to October 2009, Rajaratnam paid Kumar $1.75 to $2 million for inside information, and Kumar reinvested some of those funds in a nominee account at Galleon, earning, together with the profits on such reinvestments, a combined total of roughly $2.6 million for his participation in the scheme.
The SEC's initial Complaint, filed on October 16, 2009, alleged that six individuals, including Rajaratnam and Kumar, and two hedge funds, engaged in widespread and repeated insider trading that generated over $25 million in profits. Rajaratnam is the founder and a Managing General Partner of Galleon, a New York hedge fund which at the time had billions of dollars under management. When the complaint was filed, Kumar, a friend of Rajaratnam's and a Galleon investor, was a director at the global consulting firm McKinsey & Co. ("McKinsey"). The Commission's complaint alleged that Rajaratnam unlawfully traded based on inside information involving eight different companies. It further alleged that Kumar acquired material non-public information while working as a McKinsey consultant and passed that information to Rajaratnam, who traded on it. The complaint charged Rajaratnam and Kumar with violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Rajaratnam with violations of Section 17(a) of the Securities Act. On November 5, 2009, the SEC filed a First Amended Complaint charging an additional ten individuals and four entities with illegal insider trading that generated nearly $8 million more in unlawful profits.