Bloomberg News

Two-Time Insider Trader Roomy Khan Seeks to Avoid Prison

January 31, 2013

Roomy Khan, the former Intel Corp. (INTC:US) executive twice convicted of passing illegal tips to Raj Rajaratnam, is asking a judge to let her stay out of prison so she can help young people in finance “not fall to the temptation of easy money with insider trading.”

Khan, who provided information that helped the U.S. get a court-authorized wiretap on Rajaratnam’s phone, seeks a term of five years’ probation at her sentencing hearing scheduled today in federal court in Manhattan. Her lawyer, Stanislao German, argues that her cooperation with prosecutors eventually led to the conviction of the Galleon Group LLC co-founder and at least a dozen other insider traders.

“I am waiting for absolution,” Khan wrote in a letter to U.S. District Judge Jed Rakoff without providing any details on how she would help young people stay out of trouble. “The career/glamour driven woman that I used to be has been completely decimated at this point.”

Prosecutors credit Khan with having provided “very substantial assistance” to the U.S. and said she’s still helping them, while having lied, destroyed evidence and tipped off co-conspirators to the federal investigation after agreeing to assist the government in November 2007 and pleading guilty in 2009 to conspiracy, securities fraud and obstruction of justice.

Federal prosecutors aren’t allowed to recommend a specific sentence for cooperating witnesses. The most serious of her crimes carries a maximum sentence of 20 years.

Rajaratnam’s ‘Edge’

This is Khan’s second round of insider-trading charges. She pleaded guilty in 2001 to wire fraud and was sentenced in 2002 to home detention after agreeing to cooperate with a federal probe of Rajaratnam in California. Two years later, Khan said “untenable” financial pressures caused her to return to passing insider tips to Rajaratnam to give him an “edge.”

“As I reflect upon the choices I made, it makes me feel aghast at these decisions,” Khan said in her Jan. 22 letter to Rakoff. “No circumstances justify breaking the law. Because everyone is doing it provides no excuse to engage in this behavior. Especially I should have conducted myself better because I had gotten a break in the past!”

Khan said the strain of maintaining an extravagant lifestyle was the “albatross” around her neck that led her back to insider trading.

Mounting Bills

“Slowly, the immorality and unlawfulness of insider trading was replaced by the desperate need to make money and pay my mounting bills,” she wrote. “Over time, the shame and ignominy of losing my house and status in this society became more important than the unlawfulness of insider trading and the fear of getting caught.”

Khan, who has a degree in physics from Delhi University and a master’s in electrical engineering from Columbia University, said she lied to agents with the Federal Bureau of Investigation after pledging to help them so she could shield her friends.

“The many lies I told the government were an effort to protect other people,” Khan said. “However, there is no excuse for the choices I made during that time. Nothing can defend my decisions through that time. All I can say is that I was in the middle of this massive storm that completely destroyed my life.”

Her lawyer argues that Khan’s work, in addition to helping the government win convictions that sent others to prison, has enabled the U.S. to secure $250 million in fines, forfeitures and SEC settlements.

Probation

Dozens of people have been convicted of insider trading as part of overlapping investigations tied to Rajaratnam’s hedge fund and related cases, German said. Rajaratnam, convicted in 2011, is serving an 11-year prison sentence. German noted that other cooperators in the Galleon probe were spared prison terms and given probation.

“Notwithstanding these tremendous gains for the government, Roomy’s assistance has come at a dear price,” German said in his sentencing memo to Rakoff. The lawyer said his client has been “demonized” by the press.

“She has lost all of her money, her home, her friends and acquaintances,” German said. “In sum, while the government has enjoyed huge success based on her cooperation, Roomy’s life has been eviscerated.”

Khan said she’s surprised her husband of 25 years hasn’t left her, “but takes every opportunity to attack me for my past.”

Life Dues

“I treat my life now as part of my dues,” she wrote to the judge.

Prosecutors said Khan’s cooperation was flawed, noting that she alerted Deep Shah, a former analyst at Moody’s Investors Service who the government says was one of her sources of illicit tips, to the federal probe. As a result, Shah, who was in India at the time, hasn’t returned to the U.S., the government said.

“Given Khan’s serious misconduct during the time she was cooperating with the FBI, the defense had abundant material with which to cross-examine Khan,” assistant U.S. attorneys Christopher LaVigne and Jillian Berman said in a letter to Rakoff. “Khan repeatedly and without hesitation acknowledged engaging in serious misconduct, before, during and after the time she was proffering.”

Prosecutors have said Khan’s cooperation is “ongoing” and that she has “substantially assisted the government’s efforts in detecting insider trading.” They also noted that she also testified as a government witness in the trial of Doug Whitman, the founder of Whitman Capital Inc., who was convicted in August of conspiracy and securities fraud.

Continued Cooperation

The government asked Rakoff that her continued cooperation with the U.S. be a condition of any sentence he imposes.

The U.S. has said Khan first came to the attention of federal investigators in Northern California in 1998 after a complaint from her then-employer, Intel.

Intel suspected Khan of passing information to Rajaratnam, then a lead semiconductor analyst at Needham & Co., according to court records. A video camera installed by Intel over a fax machine captured images of her as well as the number she dialed, which the FBI later identified as Rajaratnam’s.

The Santa Clara, California-based company fired Khan after conducting an internal probe, according to court records. After pleading guilty to wire fraud and agreeing to cooperate with the U.S. in 2001, Khan was sentenced in July 2002 to six months’ home detention and ordered to pay a $30,000 fine and $120,000 in restitution, according to court records.

No charges were filed against Rajaratnam and prosecutors closed that case in August 2002, FBI agent B.J. Kang has said. The U.S. said in Khan’s 2002 sentencing memo that Rajaratnam couldn’t be tied to illegal insider trading.

Second Probe

The government started looking at Khan a second time after the U.S. Securities and Exchange Commission opened a probe of Rajaratnam in 2006. A parallel probe by the FBI in New York and the Manhattan U.S. Attorney’s office, which started in March 2007, was stalled until Kang approached Khan in late 2007 and asked her to become a cooperator, U.S. officials have said.

Khan agreed to begin working with the government in November 2007 and helped investigators win authorization to wiretap Rajaratnam’s mobile phone in March 2008, prosecutors said.

The case is U.S. v. Khan, 09-cr-00991, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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