Federal judge dismisses two insider-trading counts against Rengan Rajaratnam

The only count left against Raj Rajaratnam’s younger brother is one of conspiracy

The troubles for prosecutors in the case of Rajarengan (“Rengan”) Rajaratnam — younger brother of convicted insider trader Raj Rajaratnam — are mounting, as a federal judge dismissed two insider-trading counts through narrowing the definition of what constitutes insider trading.

Since noting the Securities and Exchange Commission’s near-perfect record in insider trading cases since the turn of the century, the 2nd Circuit Court of Appeals has begun requiring a higher standard of proof in these cases since April 2014.

Citing this recent trend, U.S. District Judge Naomi Buchwald dismissed two counts against Rengan, claiming that prosecutors did not reach this higher standard of proof. Prosecutors attempted to claim that people who used confidential information only need to know it had been disclosed in breach of a fiduciary duty. However, Judge Buchwald claimed that prosecutors hadn’t provided evidence that he was aware of the benefits of his information.

Judge Buchwald also informed prosecutors that some of their arguments were “singularly unpersuasive.” In statements not before a jury, Judge Buchwald said of the arguments, “They're going to be shoved down your throat because they don't make any sense.”

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The judge claimed that this was only the second time she had dismissed charges mid-trial, and it came after prosecutors themselves withdrew four of the original seven charges against Rengan voluntarily. Now, the only remaining charge left against Rengan is the conspiracy charge. Jury deliberations on that charge could begin as early as Monday.

Prosecutors believe that Rengan Rajaratnam conspired his brother Raj, who is currently serving 11 years in prison for insider trading, to conduct an insider trading scheme while working as a hedge trader at Galleon Group.  Prosecutors claim that the alleged trading occurred between 2006 and 2008, and Rengan made more $3 million in illegal gains.

“Rengan Rajaratnam and his brother shared more than DNA,” Manhattan U.S. Attorney Preet Bharara said at the time of Rengan’s initial charges. “Along with his brother Raj, Rengan Rajaratnam was allegedly at the heart of an insider-trading scheme that swept up an unprecedented number of people in its web of corruption.”

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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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