By Joseph Checkler
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)
Galleon Group, which has been winding down its funds following charges of insider trading by founder Raj Rajaratnam, more than doubled its bet on ATI during the second quarter of 2006, according to its required Securities and Exchange Commission filing about its holdings for that quarter. Galleon as a firm owned 8.5 million shares of ATI Technologies, up from 3.3 million on March 31; it also owned call options on 31,266 shares on June 30 of that year, up from call options on 4,350 shares on March 31.
On June 30, ATI was Galleon's largest holding of a single company's equity in terms of market value at $124.5 million, not including the options, according to the filing, made on form 13-F.
On July 24, 2006, when AMD announced it was buying ATI at a 24% premium to its previous trading day's closing price, shares of ATI jumped 19%. During July 2006, ATI's stock gained more than 35%.
Federal authorities haven't cited AMD's buyout of ATI in their insider trading charges against Rajaratnam. Authorities wouldn't comment on whether they have examined any ATI trades.
What federal authorities have alleged in their amended complaint against Rajaratnam and others is that an executive from AMD did provide inside information about two subsequent AMD transactions. The AMD executive allegedly told Danielle Chiesi, a hedge fund consultant and portfolio manager who is a defendant in the insider-trading scandal, about a transaction in which AMD would spin off its semiconductor manufacturing operations into a joint venture formed with an investment company formed by the government of Abu Dhabi, as well as a separate transaction in which an Abu Dhabi sovereign wealth fund would make an investment in AMD. Chiesi, who allegedly also got information about the two AMD transactions from another defendant in the case, then-IBM executive Robert Moffat, shared some of that inside information with Rajaratnam, authorities say. Rajaratnam allegedly also got information about the two AMD transactions from then-McKinsey & Co. director Anil Kumar, who is also charged in the case. Authorities say Rajaratnam and Chiesi also shared information about AMD with each other.
Rajaratnam, Chiesi and Moffat have said they're innocent of the charges. Lawyers for Chiesi and Moffat said they haven't heard about an investigation into ATI Technologies trading. A lawyer for Kumar, who has previously said he is innocent, didn't return a call or email message seeking comment about ATI.
The amended complaint didn't name the AMD executive who allegedly gave the tips to Chiesi. Former AMD Chief Executive Hector Ruiz was identified by The Wall Street Journal as the unnamed AMD executive mentioned in the government's amended complaint as allegedly providing the tip. During 2006, Ruiz was Chairman and CEO of AMD; he left those positions in 2008.
Since that identification, Ruiz has stepped down as chairman of Globalfoundries Inc., the chip-manufacturing joint venture formed by AMD and the Abu Dhabi government investment company. Globalfoundries said Ruiz would leave the company in January.
Ruiz hasn't been charged with wrongdoing by the government for the two Abu Dhabi tips described by the government complaint. Ruiz spokesman Jeremy Fielding had no comment on whether Ruiz is the unnamed executive, or whether there's any investigation into ATI trades.
A representative of the U.S. Attorney's office in Manhattan, where Rajaratnam and Chiesi were charged, declined to comment. An SEC spokesman declined to comment beyond the Commission's complaint.
A Galleon spokesman declined to comment about the firm's ATI Technologies investments.
AMD declined to comment.
In the month when the bid for ATI was disclosed, Galleon Technology Fund, which Rajaratnam managed, booked a 6.6% gain, far outperforming the 2.5% loss of the CISDM Technology Index, according to mathematician Michael Markov's firm, Markov Processes International. The index, which Galleon Technology was part of, compiles returns of hedge funds that invest in technology stocks. That nine percentage point margin was the fund's best one-month performance versus the index since 2004, according to Markov.
The SEC filings don't disclose which specific Galleon funds held ATI stock.
The monthly performance of Galleon Technology in recent years stood out in comparison to the CISDM Technology Index on only two other occasions, according to Markov. During both of those months, July 2007 and July 2008, the fund engaged in insider trading, according to charges from federal authorities. The Markov research doesn't represent proof that the alleged insider trades drove the positive returns in those two months, given the size of the fund and other factors that can contribute negatively or positively to performance.
Galleon Technology had more than $1 billion in assets during those years. After a rough 2008, Galleon Technology had assets of around $350 million just before Galleon decided to liquidate all its funds last month.
For a $1 billion fund, it is unclear how much of the July 2006 performance could be attributed to gains made in ATI.
Markov's company provides due dillgence for banks and other firms looking to invest in hedge funds. Some of its work, like in the Galleon case, involves reverse engineering a hedge fund's returns to see if the numbers are credible. Markov does not look at holdings to see which investments might have affected performance.
Back in 2006, research by Markov warned investors that it couldn't justify the strong returns of the Fairfield Sentry hedge fund of funds, which was almost solely invested with Bernie Madoff.
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com
(Jerry A. DiColo in New York contributed to this article.)