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Hedge fund manager Raj Rajaratnam convicted of insider trading

Hedge fund manager Raj Rajaratnam was recorded getting inside information from hired experts. After the jury heard the wiretapped conversations, they convicted him of all 14 counts of insider trading and conspiracy.

By Ron SchererStaff writer / May 11, 2011

Raj Rajaratnam, billionaire hedge fund manager and co-founder of Galleon Group, is surrounded by photographers as he leaves Manhattan federal court, May 11. He was convicted Wednesday of insider trading and securities fraud, coaxing corporate tipsters to give him an illegal edge, in what prosecutors called the largest insider trading case ever involving hedge funds.

Mary Altaffer / AP

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In a case with widespread ramifications for the stock market. a federal jury has found Raj Rajaratnam, a billionaire and hedge fund manager, guilty of all 14 counts of securities fraud and conspiracy in his insider trading case.

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Mr. Rajaratnam had maintained that the trades he made for the Galleon Group, which once managed as much as $7 billion, resulted from a “mosaic” of publicly available information. However, the jury, which convicted him of 9 counts of insider trading and 5 counts of conspiracy, listened to FBI wiretaps of Rajaratnam receiving information from corporate insiders, including a director of Goldman Sachs.

The Sri Lankan native is expected to appeal the legality of the wiretaps. He is free on $100 million in bail and must wear an electronic monitoring device around his ankle.

While the Justice Department has won other insider trading convictions, Rajaratnam is one of the wealthiest individuals ever convicted. According to some reports, he spent as much as $25 million on his defense, which at times included up to 45 lawyers.

In addition to proving that money can't buy a not-guilty verdict, the conviction provides a much-needed victory in the Justice Department's efforts to reassure investors that the nation's financial markets are fair.

Inside information: 'Rules ... apply to everyone'

“Because someone has access to an individual with inside information, why should that person benefit ... while the public cannot?” asks Stan Twardy, a former federal prosecutor for Connecticut who is now a partner doing white collar defense at Day Pitney in Stamford, Conn.

“[With] inside information, I can avoid taking a loss if something bad happens, or I can make a much bigger profit if something good happens,” Mr. Twardy adds.

“Rajaratnam was among the best and the brightest," said US Attorney Preet Baharara in a statement, "one of the most educated, successful and privileged professionals in the country. Yet, like so many others recently, he let greed and corruption cause his undoing.”

The message from the conviction is clear, said Mr. Baharara. “There are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have.”

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