Galleon Probe Stymied by Lack of Follow-up, ex-FBI Agent Says

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The SEC filed parallel civil lawsuits against him and more than 20 other hedge fund executives and corporate insiders, in many cases basing claims on telephone calls covertly recorded by criminal authorities.

Stanislao German, Khan's lawyer, didn't return a message seeking comment. Rajaratnam's lawyer, John Dowd, declined to comment.

Galleon's Research

Rajaratnam has denied any wrongdoing. Defending himself last month against SEC allegations, he said in a court filing that his trades were based on research by Galleon analysts and on published media reports. Rajaratnam challenged the SEC's use of evidence from wiretaps and assailed Khan as unreliable.

Chuck Mulloy, a spokesman for Intel, declined to comment on the details of Khan's case. "We always cooperate with law enforcement and that's what we did in this case," he said. Another setback in the decade-ago inquiry was the botched effort to get Rajaratnam's phone records, Atkinson said. The FBI obtained the wrong long-distance carrier for Rajaratnam, so efforts to subpoena the call information were delayed, he said. Atkinson said he left the agency before any phone records were obtained. In early 1999, Atkinson said he decided to confront Khan with the evidence he had. She was unemployed at that point, he said. In an interview with Atkinson and another agent, Khan denied knowing Rajaratnam or faxing him information from Intel, Atkinson said. He said he showed her the pictures from Intel. Without admitting anything, she asked whether she'd have to go to jail if she cooperated, Atkinson said.

Case Reassigned

Khan "corrected her statements" after briefly denying her conduct and agreed to plead guilty and cooperate, according to a June 2002 U.S. sentencing memo filed in federal court in San Jose. After Atkinson left to take a job as head of security for a technology firm, the case was reassigned to a less experienced agent who transferred to another city not long after getting the case, he said. The case should have been taken over by the SEC at that point, he said. A third FBI agent took over the investigation that led to Khan's prosecution and cooperation, Atkinson said.

In an e-mail, SEC spokesman John Nester said the agency sued Rajaratnam in October and Khan in November.

"Prior decisions about how to proceed were made in consultation with our law enforcement partners," Nester said. The case is SEC v. Galleon Management LP, 09-cv-8811, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net; Karen Gullo in San Francisco at kgullo@bloomberg.net.