Mastermind? Probe shows Galleon chief lost millions in illegal trading

Prosecutors highlighted the winning trades in a case that they say stretched from the secretive world of hedge funds to some of the countrys biggest technology companies. They did not mention the losers. Profitable or not,insider trading is insider trading. And Rajaratnam,who maintains he is innocent,might have broken the law even if he lost money on his trades.

But the fact that some of the investments soured,and that,in all,Rajaratnam lost money,could be powerful evidence for defendants. Inside information is,by definition,information that is material to investors,and thus could cause a companys stock to move in a direction that will be obvious in advance.

For example,if a companys stock is trading at $75 and someone learns that the company will be taken over for $100 a share,that information would be material. But routine corporate news is generally not considered material.

Utpal Bhattacharya,a professor at the Indiana University Kelley School of Business and co-author of a study on insider trading convictions from 1995 to 2004,said convicted defendants had profited in every one of the cases he examined. A loss is likely to weaken the prosecutions case, Bhattacharya said. But he added that prosecutors had wiretaps in which defendants expressed concerns about their actions,which could strengthen the case.

A spokesman for the US attorneys office in Manhattan said the office could not comment beyond the criminal complaint or press statement from last week. That statement refers in its headline to a $20 million insider trading case and explains that Rajaratnam and other defendants are charged in insider trading schemes that together netted more than $20 million in illegal profits.

A one-page graphic released by prosecutors mentions six trades made by Rajaratnam that netted Galleon,his hedge fund,total profits of $20.6 million. Missing from that handout is a 2008 trade that moved badly against Rajaratnam and Danielle Chiesi,who also is charged in the fraud case. NYT

ASIA ARM STAYS LIQUID AS IT EYES REDEMPTIONS

SINGAPORE: Galleon Asia is keeping its $500 million Asia hedge fund highly liquid ahead of likely calls from investors to withdraw money,after the founder of its US-based parent was charged with insider trading. The comments underscore the uphill task faced by funds under the Galleon group,as managers struggle to convince investors about keeping their money with them after Galleons tangle with the law. It is reasonable to expect there will be requests for redemptions, said David Lau,CEO of Galleon Asia,adding so far there had been no such requests. We are highly liquid. All the prime brokers are reaffirming their support for us (the Asia fund), Lau said.

GALLEON WINDING DOWN,POTENTIAL BUYERS REPORTED

BOSTON/NEW YORK: I have decided that it is now in the best interest of our investors and employees to conduct an orderly wind down of Galleons funds while we explore various alternatives for our business, Raj Rajaratnam,the firms 52-year-old billionaire founder,said in a letter to investors and employees on Wednesday. Galleon,which managed $3.7 billion at the end of last week and boasted strong returns through September,has attracted some potential buyers,a source familiar with the matter said. News that Galleon is closing down did not surprise hedge fund industry investors and analysts. Investors began demanding their money back immediately after the news of the arrest broke on Friday. reuters