The hedge-fund firm at the center of the biggest insider-trading scandal to erupt on Wall Street in years is taking steps to close up shop.
Galleon Group, founded by billionaire Raj Rajaratnam, who was arrested last week on suspicion of running a widespread insider-trading scheme, told investors and employees in a letter Wednesday that it planned to liquidate its hedge funds.
The company also has been approached by outside parties interested in buying it, according to a person familiar with the matter. The New York firm has 130 employees worldwide.
“I have decided that it is now in the best interest of our investors and employees to conduct an orderly wind-down of Galleon’s funds while we explore various alternatives for our business,” Rajaratnam wrote.
“At this important time, I want to reassure investors of the liquidity of our funds and assure Galleon employees that we are seeking the best way to keep together what I believe is the best long/short equity team in the business,” he wrote.
The move to liquidate the funds caps a dramatic downfall for Rajaratnam and Galleon, once a premier hedge fund that managed $3.7 billion.
Galleon has been hit with heavy redemption requests in the aftermath of Rajaratnam’s arrest Friday. He was accused of running a vast insider-trading scheme in which he and five others, including an executive at Intel Corp., allegedly swapped tips on a variety of stocks.
Many institutional investors immediately seek to withdraw funds whenever there is the taint of potential impropriety, said Michael Napoli, chairman of Absolute Return Group, a Los Angeles hedge-fund advisory group.
“It’s almost automatic when something like this happens that you have to ask for your money back,” Napoli said.
Among other things, the case against Rajaratnam illustrates the perpetual frenzy among hedge funds to gather information that could give them an edge in knowing which way stocks are heading. Other hedge funds probably are reexamining their information-gathering techniques to make sure they aren’t stepping over the line, Napoli said.
Though investors sometimes rush out of troubled hedge funds for fear that they wouldn’t be able to extract their money, Galleon’s holdings appear primarily to consist of technology stocks that can be sold to raise cash.
Investors have until Nov. 15 to request redemptions, which would start to be paid Jan. 1.