Business Crimes Hotline

Jury Acquits Raj Brother of Conspiracy

On July 8, a federal jury acquitted Rengan Rajaratnam of insider trading conspiracy, after fewer than four hours of deliberation. Rengan is the younger brother of Raj Rajaratnam, who was convicted of insider trading in 2011 and sentenced to 11 years in prison. The verdict marked the end S.D.N.Y. U.S. Attorney Preet Bharara's unprecedented record of consecutive convictions by trial or guilty plea of 81 defendants on insider trading charges since 2009.

In March 2013, the government charged Rengan with one count of conspiracy and six counts of fraud, claiming that he conspired with Raj, the founder of Galleon Group LLC, to illegally trade on inside information about Clearwire and Advanced Micro Devices Inc. (“AMD”). In May 2014, prosecutors dropped four fraud counts successively. U.S. District Court Judge Naomi Buchwald then dismissed the remaining two securities fraud counts on July 1 and barred the government from introducing several key pieces of evidence. With regard to the remaining conspiracy count, the jury was instructed to consider whether Rengan conspired with Raj to obtain inside information about a potential investment in AMD in 2008.

Based on wiretapped phone calls between the Rajaratnam brothers, the “prosecutors argued [that] it was reasonable to infer they were discussing inside information.” However, Rengan's attorney said the prosecutors failed to prove beyond a reasonable doubt that Rengan was aware of exchange of benefits (if any) between Raj and the tipper for the illegal information. To convict Rengan of insider trading, the government must prove Rengan's knowledge of the tipper's breaching of a duty to keep the information confidential and receipt of benefits for doing so.

Noble Corp. Former Executives Settle with SEC on FCPA Charges

A week before the trial scheduled on July 9, one former and one current executive of Noble Corp. settled with the Securities and Exchange Commission (“SEC”) regarding books and records violations related to the Foreign Corrupt Practices Act (“FCPA”), without admitting or denying liability or wrongdoing. The settlement also did not impose any monetary sanctions.

On Feb. 24, 2012, the SEC charged former Noble CEO, Mark Jackson, and James Ruehlen, the Director and Division Manager of Noble's subsidiary in Nigeria, alleging violations of the FCPA by authorizing bribes to Nigerian Customs Service officials, falsifying records, and aiding and abetting Noble's violation of the FCPA's books and records and internal control provisions. However, the alleged wrongdoings occurred as early as 2003. Therefore, the SEC might have been constrained from further pursuing the charges due to the limitation imposed by the Supreme Court in Gabelli v. SEC, 133 S.Ct. 1216 (2013), which ruled that the five-year statute of limitations ran from the time the alleged misconduct occurred, not when it was discovered.

In the settlement, Jackson consented to a permanent injunction against violating the FCPA's books and records violations, while Ruehlen agreed to an injunction against aiding and abetting future books and records violation. Ruehlen's attorney stated that the settlement satisfactorily ended the matter.

Citigroup Reaches $7 Billion Mortgage Settlement with DOJ

On July 14, Citigroup agreed to a $7 billion settlement with the U.S. Department of Justice (“DOJ”), the Federal Deposit Insurance Corp. (“FDIC”), and five State Attorneys General. The settlement includes a $4 billion civil fine under the Financial Institutions Reform, Recovery and Enforcement Act and $2.5 billion in mortgage modifications and other consumer relief, with the remaining $500 million going to the FDIC and the states. The settlement resolved all pending civil investigations against Citigroup that relate to its residential mortgage-backed security and collateralized debt obligations; however, it does not eliminate the possibility of criminal cases being brought against the bank or its employees.

Citigroup was investigated for its mortgage-security deals in 2006 and 2007. According to the agreed-upon statement of facts, the bank received information indicating that significant percentages of certain loans reviewed did not conform to the representations provided to investors about the pools of loans to be securitized. However, Citigroup ignored repeated warnings of serious problems with the loans it packaged. Attorney General Eric Holder said that Citigroup's “activities contributed mightily to the financial crisis that devastated the economy in 2008.” The settlement had a significant negative impact on the bank's quarterly earnings. The government indicated that “the size and scope” of the Citigroup settlement should be seen as going “beyond what could be considered a mere cost of doing business.”

In November 2013, the DOJ entered into a large mortgage settlement with JP Morgan Chase & Co. totaling $13 billion. The government did not disclose the other banks that were under investigation for mortgage violations, but it is reported that the DOJ is also seeking a settlement of $17 billion with Bank of America Corp.

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Jury Acquits Raj Brother of Conspiracy

On July 8, a federal jury acquitted Rengan Rajaratnam of insider trading conspiracy, after fewer than four hours of deliberation. Rengan is the younger brother of Raj Rajaratnam, who was convicted of insider trading in 2011 and sentenced to 11 years in prison. The verdict marked the end S.D.N.Y. U.S. Attorney Preet Bharara's unprecedented record of consecutive convictions by trial or guilty plea of 81 defendants on insider trading charges since 2009.

In March 2013, the government charged Rengan with one count of conspiracy and six counts of fraud, claiming that he conspired with Raj, the founder of Galleon Group LLC, to illegally trade on inside information about Clearwire and Advanced Micro Devices Inc. (“AMD”). In May 2014, prosecutors dropped four fraud counts successively. U.S. District Court Judge Naomi Buchwald then dismissed the remaining two securities fraud counts on July 1 and barred the government from introducing several key pieces of evidence. With regard to the remaining conspiracy count, the jury was instructed to consider whether Rengan conspired with Raj to obtain inside information about a potential investment in AMD in 2008.

Based on wiretapped phone calls between the Rajaratnam brothers, the “prosecutors argued [that] it was reasonable to infer they were discussing inside information.” However, Rengan's attorney said the prosecutors failed to prove beyond a reasonable doubt that Rengan was aware of exchange of benefits (if any) between Raj and the tipper for the illegal information. To convict Rengan of insider trading, the government must prove Rengan's knowledge of the tipper's breaching of a duty to keep the information confidential and receipt of benefits for doing so.

Noble Corp. Former Executives Settle with SEC on FCPA Charges

A week before the trial scheduled on July 9, one former and one current executive of Noble Corp. settled with the Securities and Exchange Commission (“SEC”) regarding books and records violations related to the Foreign Corrupt Practices Act (“FCPA”), without admitting or denying liability or wrongdoing. The settlement also did not impose any monetary sanctions.

On Feb. 24, 2012, the SEC charged former Noble CEO, Mark Jackson, and James Ruehlen, the Director and Division Manager of Noble's subsidiary in Nigeria, alleging violations of the FCPA by authorizing bribes to Nigerian Customs Service officials, falsifying records, and aiding and abetting Noble's violation of the FCPA's books and records and internal control provisions. However, the alleged wrongdoings occurred as early as 2003. Therefore, the SEC might have been constrained from further pursuing the charges due to the limitation imposed by the Supreme Court in Gabelli v. SEC , 133 S.Ct. 1216 (2013), which ruled that the five-year statute of limitations ran from the time the alleged misconduct occurred, not when it was discovered.

In the settlement, Jackson consented to a permanent injunction against violating the FCPA's books and records violations, while Ruehlen agreed to an injunction against aiding and abetting future books and records violation. Ruehlen's attorney stated that the settlement satisfactorily ended the matter.

Citigroup Reaches $7 Billion Mortgage Settlement with DOJ

On July 14, Citigroup agreed to a $7 billion settlement with the U.S. Department of Justice (“DOJ”), the Federal Deposit Insurance Corp. (“FDIC”), and five State Attorneys General. The settlement includes a $4 billion civil fine under the Financial Institutions Reform, Recovery and Enforcement Act and $2.5 billion in mortgage modifications and other consumer relief, with the remaining $500 million going to the FDIC and the states. The settlement resolved all pending civil investigations against Citigroup that relate to its residential mortgage-backed security and collateralized debt obligations; however, it does not eliminate the possibility of criminal cases being brought against the bank or its employees.

Citigroup was investigated for its mortgage-security deals in 2006 and 2007. According to the agreed-upon statement of facts, the bank received information indicating that significant percentages of certain loans reviewed did not conform to the representations provided to investors about the pools of loans to be securitized. However, Citigroup ignored repeated warnings of serious problems with the loans it packaged. Attorney General Eric Holder said that Citigroup's “activities contributed mightily to the financial crisis that devastated the economy in 2008.” The settlement had a significant negative impact on the bank's quarterly earnings. The government indicated that “the size and scope” of the Citigroup settlement should be seen as going “beyond what could be considered a mere cost of doing business.”

In November 2013, the DOJ entered into a large mortgage settlement with JP Morgan Chase & Co. totaling $13 billion. The government did not disclose the other banks that were under investigation for mortgage violations, but it is reported that the DOJ is also seeking a settlement of $17 billion with Bank of America Corp.

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