Federal investigators have questioned executives at Bank of America’s (NYSE:BAC) Merrill Lynch brokerage unit about the firm’s relationship with Galleon founder Raj Rajaratnam, who is accused of committing securities fraud by earning millions of dollars of illegal profits by trading on insider information, the FOX Business Network has learned.
Rajaratnam had a relationship with at least one senior broker at the firm, Sanjay Patel. At one point, Rajaratnam, Patel and their families together went on vacation to Jamaica. Patel had no comment and people close to the matter say federal prosecutors have yet to express interest in his relationship with Rajaratnam, and that Patel hasn’t received a separate subpoena.
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It’s unclear if federal prosecutors have any reason to believe Patel is involved in the massive insider-trading case involving the Galleon founder. Rajaratnam has pleaded not guilty to more than a dozen counts of conspiracy and securities fraud; his trial is currently taking place in a Manhattan court room.
Still, federal investigators' interest in Bank of America’s dealings with the Galleon founder sheds light on just how important of a customer Galleon and Rajaratnam had been to various Wall Street firms. Goldman Sachs (NYSE:GS) CEO Lloyd Blankfein, testifying for the prosecution, also conceded that Galleon was a major customer of the firm. (After his testimony, he and Rajaratnam shook hands.)
Rajaratnam is accused of using illegal inside information to buy Goldman Sachs shares during the height of the financial crisis, when he was tipped by a Goldman board member of Warren Buffett’s pending investment in the firm. So far, there is no indication that any such information about Bank of America, which purchased Merrill during the height of the 2008 financial crisis, was passed onto Rajaratnam.
A spokeswoman for Bank of America had no comment; a spokesman for Rajaratnam, who claims he only traded on legitimate information, also has no comment. A person close to the bank says agents from the FBI issued a subpoena to the firm about a year ago, and prosecutors haven't contacted the firm since.
Patel met Rajaratnam before the BofA purchase of Merrill Lynch in September of 2008, an acquaintance that began because both of their children attended the United Nations International School. They soon became friends and developed a lucrative business relationship.
Patel became a major producer at Merrill as Rajaratnam personally traded large amounts of stock through the firm, which was then credited to Patel. One person with knowledge of the relationship said that Patel’s commissions grew from $1 million a year to $3 million a year thanks to the Rajaratnam relationship, a figure that neither a Bank of America spokeswoman nor Patel would deny.
To underscore just how important of a client Rajaratnam was for Patel and the firm, Merrill Lynch’s compliance department conducted an extensive review of the relationship, said a person close to the matter, before approving the trading arrangement.