Billionaire co-founder of Galleon Group, Raj Rajaratnam, has been convicted in what prosecutors called the largest insider trading case ever involving hedge funds. He remains free on $100 million bail and was placed under house arrest at his Manhattan home to await sentencing on July 29.

Rajaratnam raked in $20 million by trading on his advance notice in one deal alone and the jury convicted him of all 14 counts he’d been charged for: five of conspiracy and nine of securities fraud.

The case was, however, groundbreaking in more ways than just numbers; it was also the first time wiretaps were used to prosecute insider trading.

Rajaratnam was making a fortune by charming a crew of corporate tipsters to give him illegal information on large trades in technology and other stocks.

Prosecutors had alleged that illegal tips allowed Rajaratnam to make profits and avoid losses totalling in the region of more than $60 million.

Kenneth Herzinger, who formerly worked in the Securities and Exchange Commission Division of Enforcement, ratified another comment about the tapes being a “gold mine” of information and offered the following about their future use:

I view the use of wiretaps as a game changer and something that certainly the defense bar has taken notice of and I think that Wall Street has taken notice of [too].

The 53-year-old Sri Lankan born businessman could be heard conniving with corrupt executives and consultants in many of the 45 conversations, even demanding “radio silence” on information that could affect a stock price in one instance.

Stephen Miller, a former federal prosecutor now in private practice in Philadelphia, said that the office of US Attorney Preet Bharara, “took wiretaps for a test drive, and I’d say it was a resounding success.”

Another ex-employee of the Securities and Exchange Commission Division of Enforcement, Steven Scholes, didn’t mince his words either and declared:

There’s an old saying that you can’t cross-examine a tape.

US District Judge Richard Holwell ruled that Rajaratnam faces a possible prison term of roughly 16 to 19 years under federal sentencing guidelines.

Financial penalties have yet to be determined but, the Galleon has undeniably sailed its last voyage and officially sunk.

[Source: Ocala]