Sri Lanka shocked by fund manager fraud charges
2009-10-17

Category Hedge Funds Stock Market Stock Fraud Nations Sri Lanka Category Regions Regions Asia Event 2009 Galleon Insider Trading Source (AFP)

COLOMBO (AFP) - Sri Lankan traders reacted with shock at the weekend to US fraud charges laid against a billionaire Sri Lankan-born hedge fund manager who had big interests in the island's stock market.

The US Justice Department filed insider trading charges against Raj Rajaratnam, who spent his childhood years in Sri Lanka, and five others on Friday following an extensive wiretapping investigation.

Sri Lankan brokers said Raj, founder and head of the New York-based Galleon Management hedge fund, was a major investor in Sri Lanka's small 10-billion-dollar bourse which is among the world's best performing markets.

"I'm really shocked and surprised by the charges," said Murtaza Jafferjee, chief executive of JB Securities, a private brokerage in Colombo, who managed Rajaratnam's investments in Sri Lanka until three years ago.

Rajaratnam and his fellow alleged conspirators were accused of earning 20 million dollars from illegal trading in what US media reports said was the biggest-ever hedge fund insider dealing scheme. Related article: Warning to traders

He attended primary school in Sri Lanka before going abroad with his parents and his arrest was front-page news in the island's newspapers Saturday.

He was reported by the US magazine Forbes to have studied in Britain and the United States before creating the hedge fund, believed to manage at least six billion dollars in assets.

"Raj was by far the biggest foreign hedge fund investing in few publicly quoted and private companies in Sri Lanka," Jafferjee told AFP.

Jafferjee said the billionaire kept investing in Colombo's stock market during the height of the island's recently ended ethnic conflict when the market gave poor returns.

The charges "came as a very big surprise," said a broker who manages some of Rajaratnam's money through his Galleon Fund and requested anonymity.

According to public documents, Rajaratnam is the single largest investor in Sri Lanka's biggest quoted firm, John Keells Holdings, a conglomerate with interests from banking to ports and hotels. He holds a 9.2 percent personal stake in the company.

Figures compiled from the stock exchange by AFP showed Rajaratnam also has large holdings in other Sri Lankan blue-chips firms such as Commercial Bank and two brokerage houses either through Galleon or personally.

"He's been quietly trimming his portfolio in the past few months, making use of the booming market sentiment to make capital gains," Jafferjee said.

The billionaire, who is the world's 559th richest person according to Forbes magazine with a net worth of 1.3 billion dollars, had also donated money to local charities.

Sri Lanka's justice ministry thanked Rajaratnam last month for donating millions of dollars to rehabilitate child soldiers conscripted by Tamil Tiger separatists who were crushed by government forces in May.

Brokers said the charges against Rajaratnam were a blow to Sri Lanka's small stock market.

"It's a setback for the Colombo stock market which was proud to show him off as one of the biggest foreign investors in the country," said a fund manager who also asked not to be named.

Rajaratnam's company released a statement saying it was "shocked to learn" of his arrest and would cooperate fully with US authorities.