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| Galleon Group's traders seek legal advice |
| Bloomberg / Oct 21, 2009, 00:00 IST |
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Galleon Group’s analysts, portfolio managers and traders in New York are seeking legal advice and updating their resumes after the arrest of Raj Rajaratnam, the hedge-fund firm’s founder, led to a flood of redemption requests, people familiar with the matter said.
Rajaratnam, arrested on October 16 for alleged insider trading and released on $100 million bail, spoke to his employees yesterday, telling them in a 10-minute speech that he will fight the charges, according to two people familiar with his speech, who asked that their names not be used because the comments were private. Rajaratnam also wrote to investors and employees.
“I am entirely innocent and will vigorously defend myself and our firm,” Rajaratnam, 52, said in his letter.
“As I move forward on my defense, I want to assure you that our commitment to our investors and employees will remain unwavering.”
Redemption requests totalled $1.3 billion, the Wall Street Journal reported yesterday. The firm has assets of $3.7 billion, including about $1 billion from Rajaratnam and employees, according to two people familiar with Galleon. Retaining clients and top managers may prove challenging as Rajaratnam fights the charges. At least two executive recruiters said they had already started talking to Galleon employees about moving to other hedge-fund shops.
“I suspect the super majority of assets will be redeemed,” said Ron Geffner, a lawyer at New York-based Sadis & Goldberg LLP, whose clients include hedge funds.
“Certain portfolio managers and traders who have strong relationships with investors will find this an opportunity to start their own firms, or join other firms with assets in tow.”
As Galleon employees fielded redemption calls at the firm’s offices on the 34th floor of the IBM building on Madison Avenue in midtown Manhattan, some took time during the day yesterday to seek legal advice, while others updated their resumes, people familiar with the firm said.
The company said business was continuing as usual. One portfolio manager said today’s morning meeting would focus on company earnings that were coming up.
Rajaratnam usually runs the meetings, at 8:35 am daily, grilling the 70 analysts, fund managers and traders about the companies they invest in, and planning trading strategies.
Galleon’s hedge funds managed out of Singapore haven’t received redemption requests after Rajaratnam’s arrest and the business there is operating as usual, said a person with knowledge of the matter.
The firm has 20 employees, including traders and analysts, in the Asian city-state, the person added.
Galleon’s macro and Asian long-short equity funds, with combined assets of $600 million, are managed by Singapore-based David Lau and Justin Pollock, respectively, and not Rajaratnam, said the person, who asked not to be identified.
Bank of America Merrill Lynch and Barclays Plc have told Galleon they will no longer trade securities positions with the company amid worries that Galleon’s assets may be frozen in the pending probe, the Journal reported.
At least ten more people in the securities industry may be charged as early as this week in a federal investigation of insider trading that has been two years in the making, according to people familiar with the matter. Some of those may be connected to the case against Rajaratnam, the people said.
The pending crackdown may yield charges against hedge-fund managers and their associates, the people said, declining to be identified because the cases aren’t public.
Surveillance during the probe of Rajaratnam led investigators to other suspects and more charges are likely, people familiar with the matter said.
Investors in Galleon’s $350 million technology fund, which is run by Rajaratnam, can withdraw their money on a monthly basis. Clients of the firm’s other hedge funds, including its largest, the $1.2 billion Diversified fund, can take their money out every quarter with 45 days notice.
Galleon investors include Rochdale Investment Management LLC and Colgate University.
The Colgate University endowment portfolio has invested with Galleon since 2005, said Anthony Adornato, who wouldn’t disclose the Hamilton, New York university’s prospective investment decision, saying only that it was actively monitoring the situation. A call to Garrett D’Alessandro, chief executive of New York-based Rochdale, wasn’t immediately returned.
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