[ by Howard Haykin ]

Rajaratnam Friend and Galleon Investors 'Curries' Favor With Both.

A former Silicon Valley senior executive allegedly fed material non-public information to convicted fund manager Raj Rajaratman that enabled him to make nearly $1 million in illicit profits for his Galleon Group hedge funds.  According to the SEC, the executive not only provided the tips because he and Rajaratnam were good friends, but also because he, the executive, had a substantial investment in Galleon, was in employment discussions with Rajaratnam - and later became the Co-Managing Partner of Galleon's Special Opportunities Fund, a venture capital fund that focused on investments in late-stage technology companies.

Profile of Defendant, Kris Chellam. Chellam, 61, resides in Saratoga, CA and currently is an independent consultant to privately held technology companies.  He served as CFO of Xilinx from 1998 to 2005 and as a senior executive in the company's corporate and global services department from 2005 to 2007.  He also held high-ranking positions at other publicly traded companies;  from December 2005 until April 2011, Chellam was a Director of Cavium Networks, Inc.  Prior to joining Xilinx, Chellam spent 7 years at Atmel Corporation, serving as SVP for Finance and Administration, and as CFO.  He sat on the Board of Directors of @Road, Inc. from December 1999 until its acquisition by Trimble Navigation Limited in February 2007, where he chaired the Board's audit committee. 

SEC Findings and Allegations. From the information provided by the SEC, it appears that Kris Chellam principally provided Rajaratnam with tip one - though admittedly, it was very large and earned the hedge manager illicit profits of nearly $1 million.  It occurred in early December 2006:  Chellem allegedly tipped Rajaratnam about his employer, Xilinx Inc., falling short of previously announced revenue projections.  Rajaratnam sold short Xilinx stock based on the information, and covered his short after the negative information was announced to the public on 12/7/06 - making illicit profits of $979,000.

Chellam had more than $1 million invested in one of the Galleon hedge funds in which Rajaratnam placed these trades. Five months later, in May 2007, Chellam became the Co-managing partner of Galleon's venture capital fund.  Chellam continued to work at Galleon until April 2009 and continued to obtain confidential information about Xilinx’s financial performance and passed it along to Galleon colleagues.  These apparently were nominal tips because they did not figure into the figure that the SEC levied on Chellam.  Chellam earned approximately $675,000 in total compensation during his employment at Galleon.

Violations Charged and Agreed Upon Sanctions. Chellam was charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.  To settle the SEC charges, Chellam agreed to pay $675K in disgorgment, $106K in prejudgment interest, and a $979K penalty.  Besides the monetary sanctions, Chellam also would be barred for five years from serving as an officer or director of a public company, and permanently enjoined from future violations of these provisions of the federal securities laws. Chellam neither admits nor denies the charges.

SEC Staff Credits. The SEC’s investigation, which is continuing, conducted by:  John Henderson, Joseph Sansone of SEC’s Market Abuse Unit in New York, and Matthew Watkins, Daniel Walfish, Diego Brucculeri, James D’Avino of the NYRO. 

Chellem is the 32nd defendant charged in the SEC's Galleon-related enforcement actions.

For further details, go to:  [SEC PR 12-216, 10/26/12] and [SEC Complaint].