Raj Rajaratnam

New York, Nov. 2: For Raj Rajaratnam, the billionaire hedge fund manager charged with trading on inside information, legal problems are nothing new.

In 2005, he paid $20 million in back taxes, penalties and interest to settle a federal investigation into a sham tax shelter that he used, according to a previously undisclosed lawsuit. His Galleon Group funds were entangled in an earlier fraud case, and were found to have violated Securities and Exchange Commission rules.

Now federal prosecutors in Manhattan have charged Rajaratnam and five other people with insider trading. They have wiretaps and a cooperating witness to support their case.

But both the case against Rajaratnam and the man himself are more complex than they may first appear. Rajaratnam and Galleon trade assets rapidly, gather information rapaciously and focus on short-term gains. But those tactics are not illegal. The credibility of a crucial witness against him has already been seared, and Rajaratnam’s fund actually lost money on the trades outlined in the complaint against him.

Despite his vast wealth, Rajaratnam does not entirely fit the stereotype of a Wall Street billionaire who flies on private jets and summers in the Hamptons. Friends paint him as gregarious and generous, a fan of cricket and an avid player of fantasy football, a relatively straightforward man whose parents live with him and his wife, Asha, in Manhattan.

Among Rajaratnam’s strongest supporters is Geoffrey Canada, the chief executive of the Harlem Children’s Zone, a charity that runs after-school programmes and workshops for poor children and their families. After Rajaratnam’s arrest, Canada appeared in court to vouch for Rajaratnam and volunteered to be one of five co-signers of Rajaratnam’s $100 million bail.

Prosecutors initially asked for Rajaratnam to be held without bond, calling him a flight risk. If Rajaratnam did flee, Canada could lose everything he owned, including his house and his pension. But Canada said he was comfortable with the arrangement. “I have not had a moment’s doubt, knowing Raj and his character,” he said.

Rajaratnam is described by people who know him as charming and outgoing. “He’s got a huge personality,” said Sanjyot Dunung, a friend whose children attend school with Rajaratnam’s children. Rajaratnam likes to offer motivational clichés like “only the strong survive”, Dunung said. “There’s a little bit of bravado.”

The Rajaratnams live in an apartment on Sutton Place in Manhattan valued at $17.5 million and have homes in Connecticut and Florida. But they also have a frugal streak. They fly commercial airlines and do not collect expensive art or other trophies.

Rajaratnam’s rise to wealth was driven by the technology stock boom of the 1990s. As the Nasdaq stock market soared, many hedge funds turned in extraordinary returns, including Galleon, whose main fund rose 93 per cent in 1999. Among other funds, Galleon gained a reputation as a momentum investor that tried to ride rising stocks to their peak.