Brendan McDermid/ReutersRengan Rajaratnam pleaded not guilty in March to insider trading charges.Raj and Rengan Rajaratnam were both born in Sri Lanka. They both studied at the University of Pennsylvania and they both started hedge funds. But as Rengan, 42, faces insider trading charges, he appears to be taking a very different approach from his older brother, Raj.
In a May 30 court filing, the United States attorney’s office in Manhattan signaled that Rengan Rajaratnam is in plea discussions with the government to settle charges that he profited from inside information on such stocks as Clearwire and Advanced Micro Devices. The talks came after federal prosecutors shared evidence it had compiled – wiretap transcripts, trading records and summaries — with his defense lawyers “in order to facilitate plea discussions with the defense.”
It is unclear whether Rengan Rajaratnam has offered to cooperate with the government as part of any plea agreement or whether the talks will even result in him pleading guilty to insider trading charges.
But one of the reasons the government could be interested in the younger Rajaratnam is that he could assist lawyers if the government gets close to building a case against SAC Capital Advisors, the hedge fund behemoth founded by trader Steven A. Cohen.
Rengan Rajaratnam worked briefly at SAC nearly a decade ago, early in his career.
If federal prosecutors decide to charge the fund, they could conceivably enlist Rengan Rajaratnam to testify that he exchanged inside information with traders at SAC while he was working at Galleon, the hedge fund started by his brother Raj. Galleon liquidated its assets in 2009 after the elder Rajaratnam was arrested on insider trading charges; Raj Rajaratnam is now one-and-a-half years into an 11-year prison sentence.
An article on Dealbook this week noted how SAC Capital moved squarely onto regulators’ radar in 2006 after lawyers at the Securities and Exchange Commission noticed a curious series of instant messages between Rengan Rajaratnam and an SAC trader.
Those messages coincided with Sedna Capital, Rengan Rajaratnam’s hedge fund, and SAC accumulating bearish bets in shares of the technology company Arris Group. The five-year deadline for bringing a case against Arris has expired, but government lawyers might be seeking evidence from Rengan of more recent examples of him exchanging inside information with SAC traders. They could also look for him to lead them to others who could assist in their investigation of SAC.
Rengan Rajaratnam’s lawyer declined to comment.
The chances of Rengan Rajaratnam cooperating as part of any plea accord are slim, though. That’s because if he cooperated, he would be required to provide information about everybody — including his brothers, Raj and Ragakanthan.
It was evidence of “cherry picking” at Rengan’s hedge fund, Sedna Capital, that originally prompted the government’s investigation into his elder brother’s fund. In December 2006, when Rengan was deposed in connection with the investigation into Sedna, he was asked by Andrew Michaelson, then a lawyer at the S.E.C.: “Did you see any practices at all, investing, trading that gave you cause for concern at SAC?”
“It’s SAC, there are rumors that floated about, there was stuff in the press but quite honestly I was in a little office on the side of the building,” Rengan responded, according to the deposition. When Mr. Michaelson pressed him further, his lawyer cautioned him.