The Galleon Group, a once prominent hedge fund founded by Raj Rajaratnam, collapsed in 2008 after Rajaratnam and his associates were found to have engaged in widespread insider trading, leveraging non-public information from corporate insiders, consultants, and others to make profitable trades. The scheme involved trades in major companies such as Intel, IBM, and Goldman Sachs that generated over US$60 million in illicit gains.
The Federal Bureau of Investigation and the U.S. Securities and Exchange Commission launched investigations, using wiretaps and cooperating witnesses including Anil Kumar and Rajiv Goel. In October 2009, Rajaratnam was arrested and the scandal broke, implicating multiple individuals in what became one of the largest insider trading cases in U.S. history.
The revelations led to massive investor withdrawals, eroding confidence in Galleon. By late 2009, the firm was forced to liquidate its funds, which once managed around US$7 billion in assets, as clients fled and legal pressures mounted.
Rajaratnam was convicted in 2011 on 14 counts of securities fraud and conspiracy, receiving an 11-year prison sentence and a US$92.8 million fine. Other Galleon employees and network members, among them Danielle Chiesi, also faced convictions or plea deals.
Sources:
Henriques, Diana B. (2009), “In Insider Trading Case, a Deal That Lost Millions for Galleon,” The New York Times, October 21: https://www.nytimes.com/2009/10/21/business/21insider.html
Lattman, Peter, & Scannell, Kara (2009), “Galleon Sinks; Informant Surfaces,” The Wall Street Journal, October 22: https://www.wsj.com/articles/SB125613042653698825
Schoenberg, Tom, & Steinert, Tom (2009), “Raj Rajaratnam Became Billionaire Demanding Edge,” Bloomberg.com, October 19: https://www.bloomberg.com/news/articles/2009-10-19/raj-rajaratnam-becam…
U.S. Securities and Exchange Commission (2009), “SEC Charges Billionaire Hedge Fund Manager Raj Rajaratnam with Insider Trading,” SEC.gov, October 16: https://www.sec.gov/news/press/2009/2009-221.htm
Zuckerman, Gregory (2011), “A Dirty Business,” The New Yorker, June 27: https://www.newyorker.com/magazine/2011/06/27/a-dirty-business