Rajaratnam invests in fund run by witness

Reuters News
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Posted: Apr 14, 2011 3:27 PM
Rajaratnam invests in fund run by witness

By Grant McCool and Basil Katz

NEW YORK (Reuters) - Hedge fund founder Raj Rajaratnam and his family have invested $25 million in a $35 million fund managed by one of his former top lieutenants who is testifying at his insider trading criminal trial, the jury heard on Thursday.

In the second day of cross-examination in Manhattan federal court, Rick Schutte, the former chief operating officer at Rajaratnam's Galleon Group acknowledged the investments in a fund he started in July 2010 called Spottail Capital Advisers LLC.

The testimony was one of the more dramatic moments so far since the start of the trial on March 8, part of what U.S. prosecutors describe as the biggest probe of insider trading at hedge funds on record.

Prosecutor Reed Brodsky pointed out to the jury that a $15 million investment by Rajaratnam's family was made in the fund just eight weeks before the start of the trial. Sri Lankan-born Rajaratnam, 53, had made a previous investment of $10 million, Brodsky said.

"Did he commit or promise to invest more?" the prosecutor asked Schutte, who replied: "No, he did not."

Schutte stood to earn an annual fee of $500,000 for managing the total investment of $25 million, Brodsky noted.

When Schutte was later asked by a defense lawyer, Michael Starr, whether Rajaratnam had ever offered him anything in exchange for testifying, Schutte said: "Absolutely not."

Rajaratnam is charged with conspiracy and securities fraud and could be sentenced to up to 20 years in prison if convicted. The defense is presenting its side of the case this week.

The jury previously heard five weeks of government evidence, including dozens of FBI phone taps, and former friends who testified against the hedge fund founder.

The government contends Rajaratnam made an illicit $63.8 million in dozens of stocks between 2003 and March 2009.The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

(Editing by Dave Zimmerman)