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The Morning Brief: Rajaratnam Brother Indicted on Insider Trading Charges; Redemptions Up a Notch in March

Indictments galore. Rajarengan “Rengan” Rajaratnam, the younger brother of Galleon Group founder Raj Rajaratnam, who was sentenced to 11 years in prison, was charged with conspiracy and securities fraud stemming from his role in his brother’s insider trading scheme. Rengan Rajaratnam, who worked as a portfolio manager at Galleon, was accused of using material, nonpublic information to trade shares of Clearwire Corp. and Advanced Micro Devices, according to an announcement from Preet Bharara, U.S. Attorney for the Southern District of New York. The conspiracy charge carries a maximum penalty of five years in prison and a $250,000 fine, while the six counts of securities fraud each carry a maximum potential penalty of 20 years in prison and a maximum fine of $5 million. The government said Rengan Rajaratnam has not been arrested.

Separately the Securities and Exchange Commission filed civil charges against Rengan Rajaratnam. The regulator said the inside information concerning Clearwire originated from Rajiv Goel, an employee of Intel. The information concerning AMD originated from Anil Kumar, who was, at the time, a partner at McKinsey. Goel and Kumar both pled guilty under cooperation agreements and were sentenced to two years of probation in 2012.

The German hedge fund manager who was arrested on March 8 at the Uffizi Gallery in Florence, Italy, was indicted on U.S. federal fraud charges. According to the Federal Bureau of Investigation, Florian Wilhelm Jürgen Homm, founder and chief investment officer of Absolute Capital Management Holdings, a Cayman Islands–based investment adviser that managed eight hedge funds from 2004 until 2007, allegedly oversaw a stock manipulation scheme designed to pump up the reported returns of his hedge funds while self-dealing, causing $200 million in losses. Homm, who had been a fugitive for five years, was officially charged with one count of conspiracy to commit securities fraud, eight counts of securities fraud and one count of wire fraud. If convicted of any of the 10 counts, he will be forced to forfeit to the United States “any and all property, real and personal, which constitutes or is derived from proceeds traceable to” the crime. Homm remains in custody in Italy.

Industry tracker SS&C GlobeOp said March redemption activity increased slightly from February. Its Forward Redemption Indicator for March year-to-date shows notifications of 4.33 percent, up from 3.96 percent in February. It attributes the increase in redemptions to what it calls “heightened quarter end activity.”

SS&C GlobeOp’s data represents about 10 percent of the hedge fund industry. The Forward Redemption Indicator represents the sum of forward redemption notices received from investors in hedge funds administered by SS&C GlobeOp on the GlobeOp platform, divided by the Assets Under Administration (AuA) at the beginning of the month for SS&C GlobeOp fund administration clients. This figure peaked at 19.27 percent in November 2008.

Investors allocated an estimated $20.3 billion in net new capital in February, according to eVestment. During the same period, performance accounted for a decline of $12.1 billion. As a result, total industry assets climbed 0.31 percent, to $2.653 trillion. Credit funds pulled in nearly $8 billion of new money in February and more than $15 billion year-to-date. About $6.6 billion flowed into macro funds during February, most of it concentrated among the largest firms..

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