NY prosecutor: Profits from inside trades by hedge fund operator may have topped $50 million

Prosecutor: Inside trades maybe topped $50 million

NEW YORK — Insider trading profits for a wealthy hedge fund operator may have topped $50 million, a prosecutor told a judge Tuesday as he argued unsuccessfully for him to be jailed pending trial.

Assistant U.S. Attorney Josh Klein told Judge Richard Holwell in federal court in Manhattan that overwhelming evidence cited by the government at the time of Raj Rajaratnam’s October arrest continues to get stronger.

He said $36 million in profits located by the government by last week had already grown by $5 million this week, and “we know there are millions of additional dollars of profits.”

The swelling numbers documented by the government mean the total attributed to inside trades by Rajaratnam may be more than $50 million, Klein said.

He said Rajaratnam should be denied bail because his incentive to flee has grown with the strength of the evidence and the likelihood that he would face from 15 to 20 years in prison if he is convicted.

Holwell denied Klein’s request that Rajaratnam be jailed pending trial, and he also refused a defense request to reduce his $100 million bail to $20 million.

The judge said magistrate judges before him had accurately concluded that Rajaratnam was a risk to flee but that a sufficient bail package was likely to ensure he would appear for trial.

The portfolio manager for the Galleon Group hedge fund has been free on bail since his arrest.

His lawyer, John Dowd, promised his client would fight vigorously to clear his name at trial and said he was helping his lawyers daily in that quest.

Dowd said he will challenge wiretap evidence that prosecutors have boasted was unprecedented for a hedge fund insider trading case.

Dowd said the recordings were “cherry picked, misrepresented and misinterpreted.”

He said prosecutors had claimed that an important witness in the case had not talked to the government until 2007 when she actually had been in touch with the government a decade earlier.

“Somebody didn’t do their homework,” Dowd said.

Much of the increase in the alleged insider trading profits came as a result of information divulged during a guilty plea by Anil Kumar, 51, of Saratoga, Calif., last week.

“What he told the government was an utter fabrication,” Dowd said.

He also attacked Klein’s statement that Rajaratnam should be jailed in part because his ties to the U.S. have declined as a result of the shrinkage of his hedge fund staff from 100 employees to about 20 employees as the funds are wound down.

“It’s amazing to me that they would use the wind down of Galleon after they destroyed it” with news announcements about their case, Dowd said.

Prosecutors have charged 20 other people in the case. Seven defendants have already pleaded guilty. Klein said three of them are cooperating with the government.