Roomy Khan – the woman who ratted on Rajaratnam

Raj Rajaratnam; Galleon

Former Galleon employee promised insider info in attempt to get her job back

BY Jack Bremer LAST UPDATED AT 07:41 ON Thu 22 Oct 2009

As the Wall Street hedge-funder Raj Rajaratnam "winds down" his Galleon Group after being arrested on charges of insider trading, it transpires that he was shopped to the Securities and Exchange Commission by a former employee hoping for a lighter sentence.

According to reports in the Wall Street Journal and the New York Times, Roomy Khan worked at Galleon briefly in the 1990s. Facing financial difficulties, she approached Rajaratnam in 2005 hoping to be rehired. When he allegedly asked whether she had any inside information about public companies, she responded that she could get access to information regarding Polycom, the Silicon Valley maker of audio and data-conferencing products.

As a result, Galleon made a killing out of trading Polycom and other stocks - in Hilton Hotels and Google - for which Roomy Khan manager to aquire further insider information.

Khan, whose last known address is given as a $17.9m home shared with her husband Sakhawat Khan in Atherton, California, is identified by the SEC as 'Tipper A' and referred to in a criminal complaint filed by the Manhattan US attorney's office as 'CW', for cooperating witness.

According to the the criminal complaint, when Khan contacted Rajaratnam in late 2005, she offered information about Polycom "in the hopes of securing a position with Galleon, and in anticipation of receiving future inside tips from Mr. Rajaratnam in exchange".

Although Khan was never actually rehired, she delivered on her promise, discovering from a Polycom executive that the company's fourth-quarter 2005 earnings would be better than expected. Galleon made $735,000 in profits trading Polycom shares as a result, according to the criminal complaint. (Polycom is "providing assistance" over the matter).

In July 2007, Khan is alleged to have paid $10,000 to a junior Moody's analyst for inside information on a takeover of Hilton Hotels. Khan herself is said to have made $630,000 by using call options on Hilton shares - betting the shares would rise. But she also tipped off Rajaratnam about Hilton - and he made a profit of $4m for Galleon based on the information, according to the complaint.

Soon after this episode, Khan allegedly received a tip from an employee at the investor relations firm Market Street Partners that Google's 2007 second-quarter earnings would decline 25 cents. Khan made $500,000 from an options bet on a fall in Google stock. Once again, she is alleged to have shared her information with Rajaratnam, who, according to the complaint, made Galleon a $9.3m profit by trading in Google stock.

(Google has announced it is suspending its use of Market Street pending an investigation. Lawyers for Market Street said neither the firm nor its current employees were implicated in the Galleon insider trading investigation.)

Khan began cooperating with the SEC in November 2007 after the New York Stock Exchange picked up unusual trading in Hilton stock. In January the following year, she agreed to a wiretap of her conversations with Rajaratnam, which eventually led to his arrest in what appears to be Wall Street's biggest insider trading scandal in years. · 

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