Louis Lanzano/Associated PressRaj Rajaratnam, co-founder of Galleon Group, enters Manhattan federal court in May 2011.Combined with the fines and forfeitures ordered last month when he was sentenced to 11 years in prison for insider trading, Mr. Rajaratnam will be paying a total of $156.6 million.
“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” said Robert S. Khuzami, the S.E.C.’s head of enforcement.
Legal experts say the S.E.C. fine against Mr. Rajaratnam is noteworthy because in many cases judges will not impose such substantial civil penalties against a defendant who has already been sentenced and ordered to pay stiff criminal fines.
Mr. Rajaratnam’s lawyers argued that given the financial penalties imposed in the criminal case — a $10 million fine and $53.8 million in forfeited profits — additional civil penalties were unwarranted.
Fred R. Conrad/The New York TimesJudge Jed. S. Rakoff of Federal District Court in Manhattan.Judge
Jed S. Rakoff, the presiding judge in the S.E.C.’s case against Mr. Rajaratnam, rejected that notion.
“This misapprehends both the nature of this parallel proceeding and the purposes of civil penalties,” Judge Rakoff said in his order. “S.E.C. civil penalties, most especially in a case involving such lucrative misconduct as insider trading, are designed, most importantly, to make such unlawful trading a money-losing proposition not just for this defendant, but for all who would consider it.” He added that it was a warning that, if caught, “you are going to pay severely in monetary terms.”
Judge Rakoff arrived at the $92.8 million figure by imposing the maximum penalty under the law of three times Mr. Rajaratnam’s illegal gains at his hedge fund, the Galleon Group.
“This case cries out for the kind of civil penalty that will deprive this defendant of a material part of his fortune,” he said.
The S.E.C. brought a parallel civil lawsuit against Mr. Rajaratnam in the Federal District Court in Manhattan on the same day in October 2009 that the Justice Department charged him with orchestrating a giant insider trading scheme. At the time, Mr. Rajaratnam was one of the most powerful hedge fund managers; Forbes magazine estimated his net worth at $1.5 billion.
It is unclear how much money Mr. Rajaratnam has left. Judge Rakoff said that he reviewed the government’s presentence report, which is not public, and said that Mr. Rajaratnam’s net worth “considerably exceeds” the penalties imposed in the criminal case. A federal jury in Manhattan convicted Mr. Rajaratnam in May.
Mr. Rajaratnam’s total fines and forfeiture paid to the government are among the largest ever paid by an individual white-collar defendant. Still, it pales in comparison to
Michael Milken, the 1980s junk bond financier, who paid $600 million in fines and restitution along with his guilty plea on securities law violations.
Jeffrey K. Skilling, the former chief executive of
Enron, was ordered to forfeit $60 million for his role at the collapsed energy company, an amount that is still subject to his legal appeals.
Separately on Monday, in a hearing before Judge Rakoff, the S.E.C. said it wanted to question “one or both” of Mr. Rajaratnam’s brothers in an insider trading case against Rajat K. Gupta, a former
Goldman Sachs director who was indicted last month on charges that he passed illegal stock tips to Mr. Rajaratnam.
One brother, Rengan Rajaratnam, has been named an unindicted co-conspirator of Mr. Rajaratnam. The other brother, Ragakanthan, who goes by R.K., kept an office at Galleon. Neither has been charged with any crimes.
