Economy & Finance

Informant in Galleon insider-trading case gets a year in prison

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NEW YORK (Reuters) – Roomy Khan, a one-time technology company executive who became a key FBI informant in the insider-trading case against hedge-fund manager Raj Rajaratnam, was sentenced to 12 months in prison on Thursday.

Her defense lawyer had sought five years of probation for Khan, 54, who pleaded guilty in 2009 to securities fraud, obstruction of justice and conspiracy. U.S. District Judge Jed Rakoff in Manhattan also ordered her to forfeit nearly $1.53 million.

“As I reflect back, I am horrified by the choices I made,” Khan said.

Khan is one of only a few women who have been charged in the government’s broad insider-trading crackdown, which has involved money managers, traders, consultants and lawyers.

Her cooperation helped U.S. authorities in the Rajaratnam prosecution. Rajaratnam, founder of the Galleon Group, was convicted by a federal jury in May 2011 and is serving an 11-year prison term.

She was also called as a government witnesses at the insider trading trial of Doug Whitman, a California hedge fund manager and founder of Whitman Capital LLC who was sentenced last week to two years in prison.

Prosecutors said Khan also obstructed the investigation, alerting co-conspirators that the U.S. Securities and Exchange Commission had contacted her and deleting email communications.

Khan, whose voice broke up during her sentencing, said she was sorry, not just to the court but also to her daughter, husband and parents.

She said she lied to the government to protect herself, her friends and family and that she engaged in insider trading to “protect my life and status.”

Since August 2009, federal prosecutors in New York have charged 76 people with insider trading and have landed convictions against 71 of them.

By the end of Thursday, 42 of them will have been sentenced. Jason Pflaum, a former analyst at the hedge fund Barai Capital Management who cooperated in the Justice Department’s probe of expert-network firms, was sentenced later on Thursday to time served plus two years probation.

Prosecutors said Khan met Rajaratnam shortly after landing a job as a marketing executive at Intel Corp in 1995. They contend that when Rajaratnam started Galleon, she began giving him non-public information about Intel.

The FBI in San Francisco approached soon after. She was sentenced in 2002 to three years probation after pleading guilty to a count of wire fraud and reaching a cooperation agreement.

Khan worked at Galleon but left to manage her and her husband’s personal portfolio.

Prosecutors said in a sentencing memo filed on Friday that beginning in 2004, Khan again began soliciting non-public tips and trading on them. They said she also began exchanging her tips with other contacts and that she gave tips to Rajaratnam and Whitman.

Prosecutors attributed Khan’s insider trading to personal financial difficulties. Her lawyer said in a court filing on Monday that she lost $49.6 million of her money when the Internet bubble burst.

She began cooperating with the government in 2007 after the Federal Bureau of Investigation approached her. Her assistance led to a 2008 wiretap of Rajaratnam’s cell phone, which prosecutors said led to further evidence.

Stanislao German, Khan’s lawyer, acknowledged “bumps along the way” with regard to her obstruction of the investigation.

“For self-serving and other reasons she tried to be double-faced,” Rakoff said. “That’s not a very sympathetic thing.”

Rakoff also sentenced Khan to three years supervised release following her prison term. She previously agreed in 2010 to pay $1.86 million to settle an SEC civil lawsuit.

The case is United States v. Khan, U.S. District Court, Southern District of New York, 09-991.

(Reporting By Nate Raymond in New York- Editing by Martha Graybow, Gary Hill and Bob Burgdorfer)

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