U.S. prosecutors to drop two of seven charges against Rajaratnam's brother

By Joseph Ax

NEW YORK (Reuters) - U.S. prosecutors plan to drop two securities fraud charges against former Galleon Group hedge fund portfolio manager Rengan Rajaratnam, the younger brother of Raj Rajaratnam, who founded the firm and was convicted of insider trading in 2011.

In a letter to U.S. District Judge Naomi Reice Buchwald late Thursday, prosecutors in the office of Manhattan U.S. Attorney Preet Bharara said they no longer plan to pursue two of the seven counts brought against Rajaratnam in 2013.

Rengan Rajaratnam is scheduled to face trial on June 17, the latest case in a sweeping insider trading investigation that has led to 80 convictions since October 2009.

The prosecutors' decision comes two weeks after Buchwald said in a written opinion that the two counts in question were "internally inconsistent" with a conspiracy charge in the indictment.

At the time, Buchwald withheld ruling on whether to dismiss them to give the government a chance to determine whether it would proceed on those charges. She also denied Rajaratnam's bid to dismiss the other charges against him.

A lawyer for Rajaratnam did not immediately respond to a request for comment on Friday. A spokesman for Bharara declined to comment.

Raj Rajaratnam, Galleon Group's founder, is serving an 11-year prison sentence after a jury convicted him in 2011 for insider trading-related crimes.

Prosecutors claim the 43-year-old Rengan Rajaratnam, a former portfolio manager at Galleon, conspired with his brother to trade on non-public information relating to Clearwire Corp and Advanced Micro Devices Inc , earning $1.2 million in illegal gains.

In her opinion, Buchwald expressed skepticism about two counts relating to Clearwire purchases. The indictment first alleges that Raj Rajaratnam caused Galleon funds to buy Clearwire stock and later alleges that Rengan Rajaratnam caused the purchases.

The government had argued that Rengan Rajaratnam "aided and abetted" his brother in the purchase of Clearwire stock, but Buchwald said prosecutors had offered no evidence to support that contention.

If convicted of the highest count against him, Rajaratnam would face a maximum sentence of 20 years.

The U.S. Securities and Exchange Commission has also filed a parallel civil case against him.

The cases are U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 13-cr-00211; and SEC v. Rajaratnam in the same court, No. 13-01894.