Raj Rajaratnam to pay record $93 million in insider-trading case

After receiving an 11-year prison sentence, Raj Rajaratnam is now getting the bill for his insider-trading misdeeds.

A judge today ordered the once-celebrated Wall Street financier, who was convicted in May of spearheading a massive insider-trading scheme, to pay a civil penalty of nearly $93 million. That comes on top of an earlier $10-million criminal fine and forfeiture of $53.8 million in ill-gotten gains.

Rajaratnam's total tab: $156.6 million.

Both the prison sentence and the $92,805,705 civil penalty are the largest ever in an insider-trading case.

“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” Robert Khuzami, enforcement chief at the Securities and Exchange Commission, said in a statement.

The SEC alleged that Rajaratnam and more than two dozen others who have been caught up in a massive illicit-trading dragnet garnered illicit profits (or avoided losses) of more than $90 million through improper trading in at least 15 publicly traded companies.

The one-time hedge-fund kingpin was found guilty May 11 of 14 counts, including nine for securities fraud and five for conspiracy to commit securities fraud.

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-- Walter Hamilton

Photo: Raj Rajaratnam leaving federal court after his sentencing last month. Credit: Peter Foley/Bloomberg

Wall Street: Stocks rise at the open; gold up

Gold: Trading now at $1,787 an ounce, up 0.6% from Monday. Dow Jones industrial average: Trading now at 11,431.30, up 0.3% from Monday.

Mixed news. U.S. stock markets wavered at the open; there was disappointing news about the housing market, but that was tempered by speculation that the Federal Reserve may announce a new stimulus plan.

Morgan Stanley's feud. Wall Street has become increasingly divided between its trading operations and its more traditional investment banking operations -- and at Morgan Stanley, this division has become personal.

Downgrade insiders. The Securities and Exchange Commission is reportedly probing whether some big trading firms took advantage of last month's downgrade of the United States' credit rating by Standard & Poor's.

Rogue trader. UBS executives will meet later this week in Singapore to review the fallout from the disclosure of a rogue trader's $2.3-billion losses.

Quiet protest. Protesters are continuing their demonstrations on Wall Street, but their numbers and strength have not been overwhelming.

-- Nathaniel Popper in New York
Twitter.com/nathanielpopper

Photo credit: Stan Honda / Getty Images

Debt collectors, college roommates: Your weekly ScamWatch

Here is a roundup of alleged cons, frauds and schemes to watch out for.

Debt collection –- There are few things more intimidating than a telephone call from a collection agency. Some scam artists have been using that fear to bully people into giving up their debit card numbers on the telephone, then draining their bank accounts, the Better Business Bureau said in a recent alert. In some instances, the callers have personal information about the target, including actual debts, making the call seem legitimate. The bureau said anyone who receives a suspicious call about an outstanding debt should demand written proof of the debt and should never provide bank or credit card information over the phone until making sure the collection firm is legitimate.

Going away to college -– In addition to worrying about keeping up with their studies, new college students should take steps to prevent themselves from becoming victims of identity theft, the Better Business Bureau said. The group said it’s not always strangers who commit identity theft -– sometimes it’s a new roommate. To avoid being victimized, students should keep bank and credit card statements in a safe place and have sensitive mail sent to their parents’ homes, the bureau said. “In this day and age, you can’t always trust your peers,” said Stephen A. Cox, president and chief executive of the Council of Better Business Bureaus.  “It’s extremely important for students to be vigilant in monitoring bank and credit card statements to spot unauthorized activity.”

Life settlement company –- The Securities and Exchange Commission has obtained an emergency court order shutting down a Los Angeles company that claimed to invest in life insurance policies, but instead allegedly used investor money to finance the owner’s luxury lifestyle. The SEC accused Daniel C.S. Powell and his company, Christian Stanley Inc., of defrauding investors by making false claims that it invested in so-called life settlements. Powell raised at least $4.5 million from at least 50 investors nationwide but never used the money to buy life insurance policies as he said he would, the SEC said. Instead, he spent the money on luxury hotels, expensive cars and visits to nightclubs and restaurants, the SEC said. At the request of the SEC, U.S. District Judge George H. King issued a temporary restraining order freezing the assets of the company and placing a receiver in charge of the company’s assets. Powell could not be reached for comment. Life settlements are transactions in which policy holders sell life insurance policies to third parties.

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--Stuart Pfeifer

Photo: U.S. currency. Credit: Brian Vander Brug / Los Angeles Times 

L.A. firm accused of stealing millions from investors shut down

The Securities and Exchange Commission has obtained an emergency court order shutting down a Los Angeles company that claimed to invest in life insurance policies, but instead allegedly used investor money to finance the owner’s luxury lifestyle.

The SEC accused Daniel C.S. Powell and his company, Christian Stanley Inc., of defrauding investors by making false claims that it invested in so-called life settlements. Powell raised at least $4.5 million from at least 50 investors nationwide but never used the money to buy life insurance policies as he said would, the SEC said. Instead, he spent the money on luxury hotels, expensive cars and visits to nightclubs and restaurants, the SEC said.

At the request of the SEC, U.S. District Judge George H. King issued a temporary restraining order freezing the assets of the company and placing a receiver in charge of the company’s assets. Powell could not be reached for comment.

Life settlements are transactions in which policy holders sell life insurance policies to third parties.

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-- Stuart Pfeifer

Photo: The Securities and Exchange Commission. Credit: Jonathan Ernst/Reuters 

Stock markets expect to open on time Monday

The New York Stock Exchange and the Nasdaq Stock Market were expected to open as usual for trading on Monday, as the worst of Hurricane Irene passed.

It wasn't clear how many market employees would be able to get to work, however, with New York public transit systems still shut down.

The Securities and Exchange Commission said on its website Sunday that "the  securities exchanges have informed the SEC that they will open for regular hours on Monday. The decision to open was made in consultation with the SEC following a series of discussions throughout the weekend."

Trading was expected to be light this week, in any case, with many market players on vacation during the unofficial last week of summer.

The Securities Industry and Financial Markets Assn., Wall Street's main trade group, said Sunday that it recommended a normal trading session in the bond market on Monday as well.

Several economic reports are due on Monday, including U.S. personal income and personal spending figures for July, pending home sales for July, and manufacturing activity in August in the Southwestern region covered by the Federal Reserve Bank of Dallas.

-- Tom Petruno

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Photo: A man walks across 42nd Street in Times Square in New York on Sunday as Hurricane Irene hits the city. Credit: Timothy A. Clary / AFP / Getty Images

The Director Congressman

FLOYD NORRIS

Notions on high and low finance.

My column this week discusses a company founded by Representative Darrell Issa, Republican of California, who remained on its board until it was acquired by a private equity firm a few weeks ago. About the same time that the company decided to look for a buyer, it forced small investors to sell for a fraction of what larger shareholders would soon receive.

Notions on high and low finance.

It is the second time this week that The New York Times has run an article centered on Mr. Issa. On Monday, Eric Lichtblau reported on the “overlap between his private and business lives, with at least some of the congressman’s government actions helping to make a rich man even richer and raising the potential for conflicts.”

It is reasonable to ask why the two articles appeared in such a brief time.

The answer is that I was intrigued by references to the company in the article that appeared Monday. After reading it, I looked up the company, DEI Holdings, and was interested in what I found. It had cost its investors millions, and it had taken steps that ended up treating some investors worse than others. Had I noticed the company, I would have been tempted to write about it even if it did not have a well-known director. The involvement of Mr. Issa, who has often criticized the Securities and Exchange Commission, made it all the more interesting.

I called Mr. Issa’s spokesman on Tuesday, asking for an interview to discuss both his views on securities laws and his experience at the company. I told the spokesman of specific issues at the company that interested me. He did not call back. A spokesman for the company did return my call, but did not provide information on what I think is an important question: Had the company decided to seek a buyer before the small investors were forced out?

At the hearing Representative Issa conducted, which I link to in the column, he stated the S.E.C. had a “dual mandate.” One is to protect the public. The other is capital formation. At that hearing, at least, he was more interested in the latter. He said he believed that a loosening of S.E.C. rules would lead more companies to seek capital, and thus promote economic growth.

I think the two mandates are intimately related. Perhaps the most important aspect of our capital-raising system is the belief that investors can get a fair shake when they are in no position to closely monitor what is happening at the companies where they invest their money. If that belief were to vanish because the S.E.C. did a bad job on the first mandate, the commission would have no chance to fulfill the second one.