Prosecutors may face difficulties in prosecuting alleged inside trader Rengan Rajaratnam

Rengan’s older brother Raj Rajaratnam is serving 11 years in prison for masterminding the alleged scheme

Infamous insider trader Raj Rajaratnam may have been convicted of conspiracy and securities fraud in 2011, but as the case of his younger brother Rajarengan (“Rengan”) Rajaratnam prepares to go to trial, prosecutors may face new difficulties in bringing harsh penalties against this alleged insider trader.

Rengan stands accused of trading on confidential information from wireless broadband company Clearwire Corp. and chip maker Advanced Micro Devices Inc. Allegedly Galleon Group, a hedge fund founded by the elder Rajaratnam brother, used the information to make $800,000 in profits.

However, while Raj may have faced tough sentencing, government prosecutors seem to be having a hard time with Rengan’s case. Prosecutors have reduced the charges against Rengan from seven to three: two counts of securities fraud and one count of conspiracy. In addition, the Wall Street Journal reports that U.S. District Judge Naomi Reice Buchwald, who is presiding over the case, has called the evidence “inconsistent.”

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In addition, the court’s recent track record in insider trading cases works in Rengan’s favor. In April, a three-judge panel at the 2nd Circuit Court of Appeals signaled doubts with the government’s near-perfect record in insider trading cases since the turn of the century.

As a result, the court — which handles federal cases for the economically-important state of New York — has begun requiring a higher standard of proof for insider trading. In early June, the court cleared alleged insider trader Nelson J. Obus of the crime, overturning an earlier conviction.

The end result of the case may depend on determining Rengan’s level of knowledge while undertaking the trades. Rengan has claimed he was not aware that the tips passed from his brother were illegal, and he rejected an offered plea deal in May. Prosecutors, however, claim to have 11 recordings that prove the younger brother’s “knowledge and intent regarding the manipulation of corporate insiders.”

The trial will begin with jury selection on June 17.

Assistant Editor

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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