FOX Business Network’s Charlie Gasparino is reporting that federal investigators are questioning Bank of America/Merrill Lynch (BAC) executives about the firm’s relationship with Galleon founder Raj Rajaratnam, who is accused of committing securities fraud by raking in millions of dollars of illegal profits by trading on insider information.
Rajaratnam had a relationship with at least one senior broker at [Merill], Sanjay Patel. At one point, Rajaratnam, Patel and their families together went on vacation to Jamaica…It’s unclear if federal prosecutors have any reason to believe Patel is involved in the massive insider-trading case involving the Galleon founder.
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, Gasparino points out that according to a person close to the matter, Merrill Lynch’s compliance department conducted an extensive review of the relationship before approving the trading arrangement.
The government’s interest in BofA’s dealings with the Galleon founder sheds light on just how important of a customer Rajaratnam and his hedge fund had been to various Wall Street firms.
Rajaratnam, who is free on $100 million bond, was arrested in October 2009 and charged with insider trading. Rajaratnam denies any wrongdoing. If found guilty, he could face up to 20 years in prison.