Every weekday at 8:35 am, Galleon Group’s 70 analysts, portfolio managers and traders pack into a conference room on the 34th floor of the IBM Building, a gray-green polished granite skyscraper on New York’s Madison Avenue. Tardy arrivals are fined $25.
At the head of the table, Chief Executive Officer Raj Rajaratnam fires off questions to the staff of his $3.7 billion hedge fund firm: Which companies’ margins are peaking? What would change your mind about this stock? What’s the risk of that company failing to win an expected contract? The 52-year-old billionaire expects his analysts to have an edge: better information than anyone else, say people who have attended the meetings.
US prosecutors allege that Rajaratnam’s own edge was illegal. He was arrested on October 16 at his home on Manhattan’s Sutton Place, charged with using inside information to trade shares including Google Inc, Polycom Inc, Hilton Hotels Corp and Advanced Micro Devices Inc, according to complaints. Five other defendants also were arrested in New York and California in a $20 million scheme that prosecutors say is the largest-ever insider trading case involving hedge funds.
“Every trader wants an edge, and there are many gray areas when it comes to aggressive research,” said Ron Geffner, a lawyer at New York-based Sadis & Goldberg LLP, whose clients include hedge funds. “But if you trade on material, non-public information that comes from a company insider who is breaching his fiduciary duty, odds are that it is illegal.”
Rajaratnam’s net worth of $1.3 billion makes him the 559th richest person in the world, according to Forbes Magazine, on par with the likes of hedge fund manager Julian Robertson and investor Wilbur Ross. Rajaratnam has invested in at least one New York City restaurant, Opia, in midtown Manhattan, according to people who know him.
In the early years of this decade, Galleon was among the 10 largest hedge funds in the world, and it managed $7 billion at its peak in 2008. It was one of the three largest technology hedge funds along with Lawrence Bowman’s Bowman Technology Fund, which closed in 2001, and Daniel Benton’s Andor Capital Management LLC, which shut down last year.
Galleon’s $1.2 billion Diversified fund has climbed 21.5 per cent a year, on average, since 1992, according to a September Galleon marketing document, compared with 7.6 per cent for the Standard & Poor’s 500 Index of the largest US companies.