Page last updated at 10:36 GMT, Monday, 19 October 2009 11:36 UK

Fraud case hits Sri Lankan shares

Hedge fund founder Raj Rajaratnam is led away by FBI agents in New York, 16 October 2009
Raj Rajaratnam (centre) is accused of insider trading in 2007

The Sri Lankan stock market has fallen sharply after the arrest of a Sri Lankan billionaire hedge fund manager in New York on insider trading charges.

Raj Rajaratnam was arrested on Friday and charged with pocketing millions of dollars from illegal trades.

The Colombo Stock Exchange fell 3.9% before recovering to close down 1.6% on Monday, the biggest fall since 4 June.

Investors fear that Mr Rajaratnam will be forced to sell his extensive holdings in Sri Lankan companies.

He was one of the biggest foreign equity investors in Sri Lanka, both in his personal capacity and through [his fund] Galleon Group
Channa Amaratunga, CT Capital

This would be likely to cause their shares to fall in value.

"This is bad news without a doubt," said Channa Amaratunga at Colombo-based CT Capital.

"He was one of the biggest foreign equity investors in Sri Lanka, both in his personal capacity and through [his fund] Galleon Group."

US prosecutors claim that Mr Rajaratnam and five other investors secured inside information regarding firms including Google, AMD and Hilton Hotels.

The others charged in the case include Rajiv Goel, a director of strategic investments at Intel Capital; and Robert Moffat, senior vice president in the systems and technology division of computer group IBM.

They are joined by Anil Kumar, a director at global management-consulting firm McKinsey & Co; and Danielle Chiesi and Mark Kurland of New Castle Partners.

The insider trading is said to have taken place between January and July 2007.



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