Rengan Rajaratnam cleared, U.S. insider trading streak snapped

NEW YORK (Reuters) - Rengan Rajaratnam, the younger brother of convicted Galleon Group founder Raj Rajaratnam, was cleared on Tuesday of conspiring to engage in insider trading while at the hedge fund, ending a five-year winning streak by U.S. prosecutors.

After deliberating for less than four hours, a federal jury in New York found Rengan Rajaratnam, a former portfolio manager at Galleon, not guilty of the one conspiracy count he faced following the mid-trial dismissal by a judge of two more serious fraud charges.

Rajaratnam, 43, who was living in Brazil at the time of his indictment, hugged his lawyers after the jurors were dismissed.

"You can go back to Brazil for the finals," U.S. District Judge Naomi Reice Buchwald said, referring to the World Cup.

"Absolutely," Rajaratnam said.

The verdict came more than three years after jurors in the same courthouse convicted Raj Rajaratnam, 57, for engaging in insider trading in a scheme that resulted in $63.8 million in illicit profit, earning him an 11-year prison sentence.

Before Tuesday, a crackdown on insider trading led by Manhattan U.S. Attorney Preet Bharara's office had resulted in the conviction of 81 individuals in consecutive cases since October 2009.

The acquittal followed significant setbacks in the prosecution of Rengan Rajaratnam, who when first indicted in March 2013 faced six counts of securities fraud and the conspiracy charge.

Four securities fraud charges were dropped pretrial, including two that Buchwald called inconsistent with other parts of the indictment. Buchwald dismissed another two fraud counts for lack of evidence after the prosecution rested. The government claimed a tip to Raj Rajaratnam in March 2008 - that Intel Corp was planning to invest $1 billion in technology company Clearwire - enabled Galleon to reap $700,000 and Rengan to earn $100,000.

Prosecutors said the tip came from Rajiv Goel, a former Intel executive who pleaded guilty in 2010 to charges stemming from the scheme and received two years of probation.

After Buchwald tossed charges related to Clearwire, prosecutors were limited to arguing the brother conspired to engage in insider trading in the company and AMD.

Prosecutors said that in August 2008 Raj Rajaratnam told his brother of a "handshake" deal between AMD and an Abu Dhabi state-owned company he learned about from Anil Kumar, a McKinsey & Co partner.

In a wiretapped recording of a call that same day, Rengan Rajaratnam told his brother he had talked with another McKinsey partner, David Palecek, who "spilled his beans" and encouraged him to buy AMD. Despite trading on the tip, Galleon sold AMD for a loss due to overall market declines, prosecutors said. Rengan Rajaratnam, meanwhile, earned $40,000 personally trading AMD, prosecutors said.

Rengan Rajaratnam's attorney, Daniel Gitner, said his client was simply seeking investment advice from Palecek.

Following the verdict, Gitner said in a statement, "Today is the day Rengan has been waiting for. ... Rengan looks forward to getting on with his life."

Kumar pleaded guilty in 2010 and was later sentenced to two years of probation. Palecek died in 2010.

The case is U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 13-00211.

(Additional reporting by Joseph Ax; Editing by Noeleen Walder, Nick Zieminski and Jonathan Oatis)

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