Birds of a feather…consider your client’s business connections as part of your risk assessment
A global consulting group ordered a risk management investigation of a commodities trading firm and its principals. Media searches revealed that among the subject firm’s investors was Galleon Group founder Raj Rajaratnam, a hedge fund manager alleged by the U.S. Department of Justice to have received over $35 million in ill-gotten profits as a result of a sophisticated insider trading scheme. Media outlets also reported that Rajaratnam made a $5 million contribution to a Sri Lankan charity identified as under the control of the terrorist group, The Tamil Tigers; however, Rajaratnam’s name did not appear in the subject firm’s filings with the Securities and Exchange Commission or in Secretary of State records. In the wake of Rajaratnam’s 2009 arrest, a partner in the subject firm acquired stakes in a foreign bank. Among the investors in the bank was an individual who had also partnered with Rajaratnam in 2006 to form a hedge fund management company. By canvassing media stories from several years, SI’s analyst pieced together this complicated web, with Rajaratnam at its center. In addition to these dubious business connections, public record searches uncovered state and federal tax liens in excess of $15 million against two of the subject company’s executives. Additionally, the National Futures Association (NFA) indicated the company had withdrawn its membership, even though the firm’s Web site claimed membership in the NFA.
