Sri Lanka claims billionaire trader funded terrorists

Date: Monday, October 19, 2009
Author: CNN.com

Raj Rajaratnam, the New York-based billionaire and hedge fund manager charged in an alleged insider trading scheme on Friday, was funding the Liberation Tigers of Tamil Eelam, which is considered a terrorist group by the US, the Sri Lankan government claimed on Sunday.

Brigadier Udaya Nanayakkara, spokesman for the Sri Lankan defence ministry, told the Financial Times that the government had been monitoring Mr Rajaratnam for several years.

"[Sri Lanka-born] Raj Rajaratnam was involved in several schemes funding the LTTE. [He] wasn't under formal investigation because he was operating from the US . . . but he was still funding the LTTE frontline organisation."

Jim Walden, partner at law firm Gibson Dunn & Crutcher in New York and Mr Rajaratnam's defence attorney, said his client was innocent of insider trading and would fight the charges in court. Mr Walden on Sunday denied that his client was a supporter of the LTTE.

The allegations about Mr Rajaratnam's background will underscore hedge fund investors' growing interest in the lives of the managers to whom they entrust their money.

Since the Madoff scandal last year, investor due diligence efforts have moved beyond fund account-checking. Deep background checks on managers and their personal lives are becoming a matter of course.

Meanwhile, the US authorities' case against Mr Rajaratnam represents a stepping up of the resources that are being committed to targeting insider trading. It is the first market abuse case based on wiretaps, a manpower-intensive tool usually reserved for racketeering and corruption, and could be the first in a series of fraud prosecutions brought by the new leadership of the Securities and Exchange Commission.

Brig Nanayakkara alleged that Mr Rajaratnam had sponsored the Tamil Tigers for several years with "many millions of US dollars". However, he could not give specific details about how much Mr Raj had invested in the LTTE and how.

Mahinda Rajapaksa, Sri Lanka's president, declared the country "free from terror" last May after the army killed Velupillai Prabhakaran, the leader of the island's Tamil rebels, bringing to an end one of Asia's longest-running civil wars. The LTTE separatist fighters were renowned for their use of suicide bombers and for assassinating two heads of state.

US media reports have alleged that Mr Rajaratnam had been financing the Tamil Rehabilitation Organisation, which the US considers a front for the LTTE. However, Mr Walden told the Wall Street Journal that his client was innocent and had only been funding tsunami relief activities in 2005.

At that time, Mr Rajaratnam's name had already been linked to the LTTE. But he vigorously denied any involvement with the separatist organisation in an interview with the Sri Lankan Sunday Times, published on June 5 2005.

"I have funded orphanages in Mullaitivu, as much as I have funded education projects in Kalutara. I funded Vanni Tech as much as I funded Sunera Foundation. I know there is speculation, but I don't worry about it one bit," he was quoted as saying. "People don't understand philanthropy in this country...Here when you do charity people say that I have got political ambitions."

The billionaire founded Galleon, which became one of Wall Street's biggest hedge funds in 1997 and has minority stakes in many of Sri Lanka's top listed companies, including Commercial Bank of Ceylon.

Brigadier Nanayakkara said that none of the companies in which Mr Rajaratnam has investments in Sri Lanka were under investigation. However, he did not rule out that the government could take action in the future. "We will have to wait for the outcome of the current investigation in the US and then we'll look into [the companies'] possible role in financing the LTTE and if we can prove that the companies have sponsored the terrorists we will take action."

In Sri Lanka, news of Mr Rajaratnam's arrest was received with great surprise. Sri Lanka's Sunday Times ran the story on its front page with a strong headline: "Raj arrest triggers panic in Lanka."

Murli Reddy, the Colombo correspondent of the India daily The Hindu said: "Everybody in Sri Lanka is talking about his arrest. The guy invested a lot of money in the country, so that explains the great interest among people," said Mr Reddy.

The Sri Lankan government has stressed that it would provide US authorities all the support it needs in the investigation.