In the first case of approximately 81 insider cases that the S.D.N.Y. has successfully brought alleging insider trading, a New York federal jury acquitted Rengan Rajaratnam (Rengan), a former hedge fund manager, of conspiracy to commit insider trading and the use of manipulative and deceptive devices to commit securities fraud. 

Rengan was a former analyst and portfolio manager for Galleon Group. Galleon, which operated a family of hedge funds, was founded and headed by Raj Rajaratnam (Raj), Rengan’s older brother. Raj, who was convicted of insider trading conspiracy and securities fraud in 2011 and is currently serving an 11-year prison sentence, was a superstar in the hedge fund industry prior to his 2009 arrest. 

Rengan’s indictment alleged that Rengan and Raj, along with others, participated in a 2008 conspiracy to defraud by obtaining, sharing and disclosing inside information belonging to publicly traded companies and trading on this information. The indictment further alleged that Rengan used this information to purchase shares in Clearwater Corporation after learning that Intel was planning to invest $1 billion in the company, and that Raj purchased shares of Advance Micro Devices Inc. on behalf of Rengan based on a tip about a multibillion-dollar transaction. While the original indictment alleged seven charges, prosecutors dropped four of those seven in May 2014. Then, in the middle of the trial, US District Judge Naomi Reice Buchwald dismissed two more charges after ruling that the government failed to present sufficient evidence to prove them beyond a reasonable doubt. After this, the jury was left with only one charge to consider.   

As part of its case, the government was required to prove that Rengan knew about the benefits the two tippers received from Raj in exchange for their inside information. During the trial, however, the two insider tippers testified that they admittedly should not have tipped Raj, but emphasized that they never told Rengan that Raj had given them money and other personal benefits in exchange for inside information. Consequently, a federal jury acquitted Rengan on the only charge remaining. The acquittal ended Manhattan US Attorney Preet Bharara’s perfect record in stock-tipping cases.   

USA v. Rajaratnam, No. 1:13-cr-00211 (S.D.N.Y. Jul. 8, 2014).