Famous Frauds - Galleon Group

Galleon Group imploded in 2009 after allegations that it's billionaire founder and head, Raj Rajaratnam, used insider information to profit from trades in stock.

It turns out that some of the fund's double digit returns were a result of insider trading. Rajaratnam relied on a wide network of tipsters for non-public knowledge, allowing him to make a fortune for both his funds and himself. This insider knowledge included everything from advance knowledge of Warren Buffet's purchases to inside information on Intel and IBM.

Rajaratnam founded the Galleon Group, a New York hedge fund that was, for a time, the biggest hedge fund in the world.  The fund was liquidated after his arrest as investors demanded their money back.

He was sentenced to 11 years in prison and ordered to pay millions in restitution. While it is the longest prison sentence ever given for insider trading, I'm not sure it really is adequate for the scope of the crime.

To date, Rajaratnam's is the largest insider-trading ring ever uncovered, and the impact is significant. The insider trades resulted in losses for other investors as they either over-paid or under-profited from trading with Galleon. Not only that, but the sheer magnitude of Galleon's trades impacted prices other investors paid for the those same stocks in the stock market.

The sentencing judge considered Rajaratnam's generous contributions to charity as a mitigating factor in the sentencing.  That begs the question - was it really his money to contribute? More likely, it came from the ill-gotten gains from his insider trades.

Read more about fraud and forensic accounting at http://colleencross.com
Colleen is the author of Exit Strategy, a Katerina Carter suspense thriller available at Amazon.com here or Amazon.co.uk here.