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Blotter, November 2009

Financial advisors who got caught in a swindle.

SEC Hedgie Trading Bust:

The SEC charged hedge fund manager and billionaire Raj Rajaratnam and his firm, Galleon Management, with conducting a large insider trading operation that generated illicit gains of $25 million for Raj and six others involved in the scheme.

Filed in Manhattan court, the SEC's complaint alleges Rajaratnam used friends and contacts to get non-public information about corporate earnings and/or takeover activity at several firms, including Google, Hilton and Sun Microsystems, which he used to trade on behalf of the fund. “This complaint describes a web of fraud that has been unraveled,” said SEC Chairman Mary Schapiro in a statement.

Robert Khuzami, Director of the SEC's Division of Enforcement elaborated with a colorful take-down of the former high-flying manager. “He is not the astute study of company fundamentals or marketplace trends that he is widely thought to be,” said Khuzami. “Raj Rajaratnam is not a master of the universe, but rather a master of the rolodex.” Others charged in the complaint include Danielle Chiesi, a portfolio manager at New Castle Funds; Rajiv Goel, a managing director at Intel Capital, an Intel subsidiary; Anil Kumar, a director at McKinsey & Company; Mark Kurland, a senior managing director and general partner at New Castle Funds; Robert Moffatt, a senior vp at IBM; and the New Castle Funds.

SEC Squeezes Millions From Traders:

Two Wall Street traders settled with the SEC over insider trading charges in October. The two men, Erik Franklin and David Tavdy, were alleged to have traded on inside information tipped to them by friends at UBS and Morgan Stanley, in exchange for kickbacks. Franklin allegedly used two hedge funds he managed, Lyford Cay Capital and Q Capital Partners, as well as personal accounts to profit from the information. Tavdy used various broker-dealers to trade on the information. In settling with regulators, neither man admitted nor denied the SEC's allegations. Franklin agreed to cough up $5.4 million and is barred from working at another broker-dealer or RIA. Tavdy agreed to pay back $10.3 million and was also barred from working at another b/d or RIA.

Beverly Hills Ponzi:

Forty-seven year old Michael McCready, a Beverly Hills RIA admitted in October to swindling at least 25 clients out of $9 million in a Ponzi scheme he conducted over 5 years. He plead guilty in a Los Angeles Superior Court on the same day a civil lawsuit was filed by more than 20 of his alleged victims, many of whom considered McCready a friend, according to reports. He faces up to 20 years in prision.

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