May 19, 2011

The Dark Galleon Money Manager Nearing To Augment Financial Compliance

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NEW YORK, NY - MARCH 23:  Billionaire Galleon ...

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The guilty sentence of money manager star Raj Rajaratnam on illegal trading charges concluded mixed reactions in Connecticut, where fund managers must now worry about increased investor scrutiny and possibly additional wire taps, according to some analysts.

Rajaratnam, co-founder of New York City-based Galleon Group LLC., was convicted on 14 federal charges of securities fraud and conspiracy on Wednesday. Over seven years, Rajaratnam, a Greenwich resident, made $63.8 million from inside information on large corporate deals including those at Goldman Sachs and IBM, according to the government.

A key part of this case was a large number of wiretaps during which Rajaratnam and conspirators discussed insider information and how to trade on it. His attorney said he will appeal the conviction. Rajaratnam, 53, is scheduled to be sentenced July 29 and faces up to 19 years.

Many expect the industry to face increased surveillance, which will force hedge funds to spend more money on compliance.
Not everyone thinks Rajaratnam’s conviction represents problems for hedge funds.

Metzger said the verdict will have little impact on the industry, which worldwide took in $32 billion in new capital during the first quarter as the amount under management swelled to a record $2.02 trillion.

But this could increase the amount of due diligence by investors.
“Those investors who are concerned about headline risk may now ask the manager about where they got their trading ideas,” Metzger said. “And that is a positive change.”

That’s a problem for Connecticut, home to the third largest concentration of hedge funds in the world, according to the association, which estimates there are 29 funds managing more than $150 billion.
There are likely to be added costs, now, too.

Rajaratnam mined his networks, according to wire taps that tracked his phone conversations, for information that the rest of the market didn’t have and profited from them, according to the government’s case.

Some involved in insider trading may choose to no longer use a telephone to discuss illicitly gained information, Zimmerman said, noting that Rajaratnam seemed unconcerned.
“He wasn’t hiding much of anything,” Zimmerman said. “Some people will continue to be brazen because they never think they’ll be caught.”

Concern over wiretaps has had the effect of lifting the business of private investigators in the state.

HedgiaRianita talks about the stock markets & hedge fund compliance. She also blogs about some of the investment compliance debates of the day. On her time off she runs on the beach and does Athletics.

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