Brother of New York hedge fund founder pleads not guilty

New York: The brother of a jailed one-time billionaire hedge fund boss pleaded not guilty to federal fraud charges Monday after rushing from his Brazil home to the United States upon learning last week that he was swept up in a massive insider trading prosecution.

Rengan Rajaratnam, 42, "dropped everything and headed to the airport" after hearing that he was indicted in the same case that resulted in an 11-year prison sentence for his brother, Raj Rajaratnam, said his attorney Vinoo Varghese. He told U.S. District Judge Naomi Reice Buchwald that it turned out he wasn't able to arrange a flight until late Saturday. He arrived in New York on Sunday morning, when federal agents arrested him. He was released on $1 million bail after Monday's court appearance.

Rajaratnam was charged in an indictment unsealed last week with conspiracy to commit securities fraud and five counts of securities fraud, similar to charges his brother was unable to overcome in a 2011 trial that featured the first extensive use of wiretap recordings in the history of insider trading prosecutions. The brothers were part of a prosecution that resulted in the convictions of more than two dozen people. The government said Raj Rajaratnam had earned as much as $75 million illegally by trading on inside information provided by friends who were fellow money managers or corrupt employees of public companies.

Varghese said Rengan Rajaratnam had found a job and built a life for himself in Brazil after his brother's conviction but still wanted to clear his name in the United States.

Advertisement

"He's clearly gone above and beyond to prove his desire to face these charges," Varghese said.

Federal prosecutors said Rengan Rajaratnam had earned nearly $1.2 million illegally on 2008 trades involving Clearwire Corp. and Advanced Micro Devices Inc.

Advertisement

A Securities and Exchange Commission civil complaint went back further. It accused Rajaratnam of conspiring with his brother from 2006 to 2008 to indulge in insider trades that earned more than $3 million for himself and for hedge funds he managed at his brother's company and at Sedna Capital Management, a hedge fund advisory firm that he co-founded.

Like his brother, Rengan Rajaratnam was born in Sri Lanka, though the judge said his lawyers indicated he is a U.S. citizen but not a Sri Lanka citizen. Under the bail arrangements, he will live in Manhattan and undergo drug and psychological counselling while awaiting trial.

Advertisement

His lawyer said he was "mentally and physically drained" after the trip from Brazil but was "ready to face these charges."

Rengan Rajaratnam wore jeans and a dark suit coat to his initial court appearance, where he only said "not guilty, your honor" when he was asked how he would plead to the charges. He was freed immediately afterward and will be required to post $500,000 in cash or property as collateral in the next week.

Advertisement

Assistant U.S. Attorney David B. Massey said the government would normally ask that a defendant be held without bail when he was arrested after arrival from another country but decided not to seek detention because Rajaratnam returned to the United States so soon after hearing of the indictment and knowing he would be arrested upon his arrival.