The Galleon Group was one of the largest
hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
management firms in the world, managing over $7 billion, before closing in October 2009. The firm was the center of a 2009
insider trading
Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information ...
scandal which subsequently led to its fall.
The firm was founded by Ari Arjavalingam, Gary Rosenbach, Krishen Sud, and
Raj Rajaratnam
Rajakumaran Rajaratnam (born June 15, 1957) is a Sri Lankan-American former hedge fund manager and founder of the Galleon Group, a New York-based hedge fund management firm.
On October 16, 2009, he was arrested by the FBI for insider trading ...
, a former
equity research analyst and eventual president of
Needham & Company
Needham & Company is an independent investment bank and asset management firm specializing in advisory services and financings for growth companies. Needham & Company is a wholly owned subsidiary of The Needham Group, which also operates a priva ...
, in 1997. The New York headquartered firm was named for the
galleon
Galleons were large, multi-decked sailing ships first used as armed cargo carriers by European states from the 16th to 18th centuries during the age of sail and were the principal vessels drafted for use as warships until the Anglo-Dutch War ...
, a large sailing ship used from the 16th to 18th centuries by European traders and explorers, especially from
Spain
, image_flag = Bandera de España.svg
, image_coat = Escudo de España (mazonado).svg
, national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond")
, national_anthem = (English: "Royal March")
, i ...
.
The rise and fall of Galleon has been the subject of a number of books including ''The Billionaire's Apprentice'' (by Anita Raghavan, a journalist with ''
The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'').
History
While working for
Needham & Company
Needham & Company is an independent investment bank and asset management firm specializing in advisory services and financings for growth companies. Needham & Company is a wholly owned subsidiary of The Needham Group, which also operates a priva ...
, Rajaratnam started a
hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
at the company's request—the Needham Emerging Growth Partnership—in March 1992. He later bought and renamed it Galleon. The fund primarily invested in technology and healthcare companies and quickly increased in value, eventually peaking at $7 billion in 2008.
Insider trading investigation
In October 2009 Rajaratnam and five others were arrested and charged with multiple counts of fraud and
insider trading
Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information ...
. Rajaratnam pleaded not guilty and remained free on $100 million bail, the largest in United States history. He was indicted by a
grand jury
A grand jury is a jury—a group of citizens—empowered by law to conduct legal proceedings, investigate potential criminal conduct, and determine whether criminal charges should be brought. A grand jury may subpoena physical evidence or a pe ...
in December 2009 and found guilty in
U.S. District Court
The United States district courts are the trial courts of the U.S. federal judiciary. There is one district court for each federal judicial district, which each cover one U.S. state or, in some cases, a portion of a state. Each district cou ...
on 14 charges in May 2011. He was sentenced by U.S. District Judge
Richard Holwell to 11 years in prison on October 13, 2011.
[Van Voris, Bob, and Patricia Hurtado]
"Ex-Galleon Trader Zvi Goffer Sentenced to 10 Years in Prison"
''Bloomberg'' via ''San Francisco Chronicle'', September 21, 2011. Retrieved 2011-09-21.
Other former and current traders at Galleon were subsequently arrested and charged with contributing to the alleged conspiracy. Several former employees of the firm cooperated in the investigation. As of January 2012 over 50 people had been convicted or pleaded guilty in the sprawling probe stemming from Galleon (not all of them Galleon employees).
Zvi Goffer, a former Galleon trader, was found guilty of all 14 counts of conspiracy and securities fraud against him and sentenced by Judge Sullivan "to 10 years in prison for his role in a scheme to trade on inside information provided by lawyers". Goffer had asked for a lenient sentence and prosecutors had recommended more than 10 years.
Adam Smith, a former Galleon trader, pleaded guilty and cooperated in the criminal trial of Raj Rajaratnam. He was sentenced in June 2012 to only a period of
probation
Probation in criminal law is a period of supervision over an offender, ordered by the court often in lieu of incarceration.
In some jurisdictions, the term ''probation'' applies only to community sentences (alternatives to incarceration), such ...
and no jail time by Judge
Jed Rakoff
Jed Saul Rakoff (born August 1, 1943) is a Senior United States district judge of the United States District Court for the Southern District of New York.
Education
Rakoff was born in Philadelphia, Pennsylvania on August 1, 1943. He grew up in ...
, who took over the case from Judge Richard Holwell when the latter retired from the bench.
David R. Slaine, a former Galleon trader, who had previously been a
portfolio manager A portfolio manager (PM) is a professional responsible for making investment decisions and carrying out investment activities on behalf of vested individuals or institutions. Clients invest their money into the PM's investment policy for future grow ...
at the hedge fund Chelsey Capital, and, prior, a trader at
Morgan Stanley
Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...
, was sentenced to three years' probation in January 2012, having provided vital assistance to the government as an
FBI
The Federal Bureau of Investigation (FBI) is the domestic Intelligence agency, intelligence and Security agency, security service of the United States and its principal Federal law enforcement in the United States, federal law enforcement age ...
informant, since 2007.
Leon Shaulov, a former Senior Portfolio Manager, did not buy shares of Goldman Sachs in the insider trading scheme. During the Rajat Gupta trial, testimony by Ananth Muniyappa (Galleon trader) appeared to make clear that Rajaratnam and Rosenbach excluded Shaulov from the Goldman Sachs information. Shaulov complained via email of being left in the dark (and losing money on his short position), including, "Thx for the heads up,", "Not one word from anyone. Thanks very much. All I get is sick dilution.", "What I give vs what I get back is disgusting." Shaulov went on to found Maplelane Capital.
Aftermath
''Also see
Galleon Group, Anil Kumar, and Rajat Gupta insider trading cases''
The SEC investigated Galleon for insider trading. This was followed by public court hearings of 2 months (for Raj Rajarathnam) and immediately after Raj's conviction, of 1 month (for Rajat Gupta). This led to the fund's closure and its directors going to jail for 2 to 10 years. Rajat Gupta was convicted in 2012 for his role and served 2 years in jail. Rajarathnam served an 8 year sentence on his original 11-year prison sentence and was released in 2019. Anil Kumar pleaded guilty to all charges and confessed in court about the role he had played.
See also
*
SEC v. Rajaratnam
References
{{Hedge funds
Financial services companies established in 1997
Financial services companies disestablished in 2009
Defunct hedge funds
Hedge fund firms in New York City
2009 scandals
Financial scandals