Local companies react to hedge fund scandal


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The alleged mastermind is 52-year-old Raj Rajaratnam and his bail is set at $100 million.

One of the richest men in the world is accused of heading this swindle. Prosecutors in New York say he and his accomplices used illegally used insider information in buying and selling stocks and many of them are Silicon Valley companies.

At the center of the government's case is Raj Rajaratnam, the billionaire founder of the Galleon Hedge Fund.

Federal prosecutors say wire taps caught the 52-year-old conspiring with executives from Intel, IBM and Newcastle Partners, formerly the hedge fund group at Bear Sterns using insider information to cheat the market.

Six were arrested on Friday morning.

"Three of the defendants manage large hedge funds on Wall Street with literally billions of dollars under management and virtually all of the insider trading took place in those hedge funds," said U.S. Attorney from New York Preet Bharara.

Prosecutors say the scheme netted $20 million in profits.

Among the company's traded are Sun Microsystems, Advanced Micro Devices, Google, Intel and Hilton Hotels.

In July of 2007 Rajaratnam was accused of using insider information about a Google earnings report that hadn't yet been made public to short sell 25,000 shares of the company.

When the report came out and the stock price fell, the U.S. Attorney's Office says Rajaratnam made $8 million profit.

Today at Galleon's Offices in Menlo Park, no one was available to respond to the charges. The only suspect arrested in California was picked up his home this morning in Los Altos Hills.

Rajiv Goel is treasury managing director for investing at Intel Capital in Santa Clara. The company said he has been been placed on administrative leave as they investigate.

Investment manager William Urban calls it another black eye for Wall Street.

"And I think one of the most damaging aspects of it is there is sometimes a belief that no one is really being hurt," he said.

That's wrong says Urban, who likens insider trading to selling a car you know is a lemon.

"That person has been harmed. They over paid for an asset based on information and they should have had just as much as you had but you didn't give it to them or they were not able to obtain it," said Urban.

Urban adds that insider trading also hurts the larger economy, because it discourages investors both in the U.S. and abroad.

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