Galleon Fund's Big July 2006 Gain Coincided With ATI Buyout
By Joseph Checkler, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Galleon Group, a hedge fund manager at the center of
insider trading charges, made large purchases of ATI Technologies Inc. stock and
call options before Advanced Micro Devices Inc.'s (AMD) bid for ATI in July
2006, according to regulatory filings.
Galleon Group, which has been winding down its funds following charges of
insider trading by founder Raj Rajaratnam, more than doubled its bet on ATI
during the second quarter of 2006, according to its required Securities and
Exchange Commission filing about its holdings for that quarter. Galleon as a
firm owned 8.5 million shares of ATI Technologies, up from 3.3 million on March
31; it also owned call options on 31,266 shares on June 30 of that year, up from
call options on 4,350 shares on March 31.
On June 30, ATI was Galleon's largest holding of a single company's equity in
terms of market value at $124.5 million, not including the options, according to
the filing, made on form 13-F.
On July 24, 2006, when AMD announced it was buying ATI at a 24% premium to its
previous trading day's closing price, shares of ATI jumped 19%. During July
2006, ATI's stock gained more than 35%.
Federal authorities haven't cited AMD's buyout of ATI in their insider trading
charges against Rajaratnam. Authorities wouldn't comment on whether they have
examined any ATI trades.
What federal authorities have alleged in their amended complaint against
Rajaratnam and others is that an executive from AMD did provide inside
information about two subsequent AMD transactions. The AMD executive allegedly
told Danielle Chiesi, a hedge fund consultant and portfolio manager who is a
defendant in the insider-trading scandal, about a transaction in which AMD would
spin off its semiconductor manufacturing operations into a joint venture formed
with an investment company formed by the government of Abu Dhabi, as well as a
separate transaction in which an Abu Dhabi sovereign wealth fund would make an
investment in AMD. Chiesi, who allegedly also got information about the two AMD
transactions from another defendant in the case, then-IBM executive Robert
Moffat, shared some of that inside information with Rajaratnam, authorities say.
Rajaratnam allegedly also got information about the two AMD transactions from
then-McKinsey & Co. director Anil Kumar, who is also charged in the case.
Authorities say Rajaratnam and Chiesi also shared information about AMD with
each other.
Rajaratnam, Chiesi and Moffat have said they're innocent of the charges.
Lawyers for Chiesi and Moffat said they haven't heard about an investigation
into ATI Technologies trading. A lawyer for Kumar, who has previously said he is
innocent, didn't return a call or email message seeking comment about ATI.
The amended complaint didn't name the AMD executive who allegedly gave the
tips to Chiesi. Former AMD Chief Executive Hector Ruiz was identified by The
Wall Street Journal as the unnamed AMD executive mentioned in the government's
amended complaint as allegedly providing the tip. During 2006, Ruiz was Chairman
and CEO of AMD; he left those positions in 2008.
Since that identification, Ruiz has stepped down as chairman of
Globalfoundries Inc., the chip-manufacturing joint venture formed by AMD and the
Abu Dhabi government investment company. Globalfoundries said Ruiz would leave
the company in January.
Ruiz hasn't been charged with wrongdoing by the government for the two Abu
Dhabi tips described by the government complaint. Ruiz spokesman Jeremy Fielding
had no comment on whether Ruiz is the unnamed executive, or whether there's any
investigation into ATI trades.
A representative of the U.S. Attorney's office in Manhattan, where Rajaratnam
and Chiesi were charged, declined to comment. An SEC spokesman declined to
comment beyond the Commission's complaint.
A Galleon spokesman declined to comment about the firm's ATI Technologies
investments.
AMD declined to comment.
In the month when the bid for ATI was disclosed, Galleon Technology Fund,
which Rajaratnam managed, booked a 6.6% gain, far outperforming the 2.5% loss of
the CISDM Technology Index, according to mathematician Michael Markov's firm,
Markov Processes International. The index, which Galleon Technology was part of,
compiles returns of hedge funds that invest in technology stocks. That nine
percentage point margin was the fund's best one-month performance versus the
index since 2004, according to Markov.
The SEC filings don't disclose which specific Galleon funds held ATI stock.
The monthly performance of Galleon Technology in recent years stood out in
comparison to the CISDM Technology Index on only two other occasions, according
to Markov. During both of those months, July 2007 and July 2008, the fund
engaged in insider trading, according to charges from federal authorities. The
Markov research doesn't represent proof that the alleged insider trades drove
the positive returns in those two months, given the size of the fund and other
factors that can contribute negatively or positively to performance.
Galleon Technology had more than $1 billion in assets during those years.
After a rough 2008, Galleon Technology had assets of around $350 million just
before Galleon decided to liquidate all its funds last month.
For a $1 billion fund, it is unclear how much of the July 2006 performance
could be attributed to gains made in ATI.
Markov's company provides due dillgence for banks and other firms looking to
invest in hedge funds. Some of its work, like in the Galleon case, involves
reverse engineering a hedge fund's returns to see if the numbers are credible.
Markov does not look at holdings to see which investments might have affected
performance.
Back in 2006, research by Markov warned investors that it couldn't justify the
strong returns of the Fairfield Sentry hedge fund of funds, which was almost
solely invested with Bernie Madoff.
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152; joseph.checkler@
dowjones.com
(Jerry A. DiColo in New York contributed to this article.)
(END) Dow Jones Newswires
11-17-091132ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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