U.S. Attorney Preet Bharara at a press conference in January.
U.S. Attorney Preet Bharara at a press conference in January. (Rick Kopstein)

With some indirect help from the U.S. Court of Appeals for the Second Circuit, Rengan Rajaratnam and his lawyers at Lankler Siffert & Wohl have snapped Manhattan U.S. Attorney Preet Bharara’s undefeated record in insider-trading cases.

After just a few hours of deliberation, a federal jury in Manhattan returned a verdict on Tuesday that Rajaratnam, the younger brother of imprisoned hedge-fund titan Raj Rajaratnam, didn’t conspire with his brother to obtain insider information about tech company stocks. Rengan Rajaratnam had originally faced seven counts, but by the end of the trial only a single conspiracy count remained.

Rajaratnam, 43, is a former portfolio manager at his elder brother’s now-defunct hedge fund, Galleon Group. His brother is serving an 11-year prison sentence following a 2011 verdict that he orchestrated what prosecutors have called the “most expansive insider-trading scheme ever perpetrated.”

Bharara’s office indicted Rengan Rajaratnam in 2013. The government alleged that while working at Galleon he illegally traded stock in Clearwire Corp. and Advanced Micro Devices Inc. based on tips his brother passed to him. Prosecutors alleged the tips allowed Rajaratnam to profit personally and to reap money for Galleon. Rajaratnam is known as a “remote tippee,” which means he didn’t deal with the original source of the insider info (the “tipper”).

As we explained here, U.S. District Judge Naomi Reice Buchwald ruled in April that two of the substantive counts were “internally inconsistent” with the conspiracy count. By the time of trial, prosecutors had narrowed the case to just two substantive counts and one conspiracy count.

After the government rested its case on July 1, Buchwald granted Rajaratnam a direct verdict on the two substantive counts. Buchwald ruled that the government couldn’t prove part of its case—namely, that Rajaratnam knew that his brother’s tippers received a “personal benefit” in exchange for helping him. In cases against tippees, not all judges have required proof that the defendants knew of a personal benefit to the original tipper. In an insider-trading case against hedge-fund managers Anthony Chiasson and Todd Newman, U.S. District Judge Richard Sullivan in Manhattan ruled that the duo could be convicted if they simply knew the original tippee breached a duty of trust or confidence.

When the Second Circuit heard oral arguments in the Chiasson and Newman cases in April, the court appeared ready to vacate their convictions on the grounds that Sullivan should have required the government to prove knowledge of a personal benefit to the tipper. The panel hasn’t yet issued its opinion, but the oral argument seems to have prodded Buchwald to impose a similar requirement in the Rajaratnam case.

Before Tuesday’s verdict, Bharara’s had secured a whopping 81 convictions in insider-trading cases. Rengan Rajaratnam is the first defendant to be acquitted at trial. Daniel Gitner of Lankler Siffert was his lead trial counsel.