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Prosecutors claimed the insider trading also took place at the New Castle hedge fund and Intel Capital, the investment arm of microchip giant Intel. 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.
US attorney Preet Bharara told a press conference that... it also marked the first use of court-authorised wiretaps to capture conversations between suspects.
"Greed is not good," said Mr Bharara. "This case should be a wake-up call for Wall Street." He added that anyone on Wall Street thinking of breaking the law should now be asking themselves "is law enforcement listening?".
The reputation of hedge funds took a beating earlier this year when Bernard Madoff was jailed for 150 years for running a $65bn Ponzi scheme.
Soon afterwards, Mr Khuzami told the US Congress that the SEC had failed in its mission to protect investors. "It is a sobering and humbling experience," he said. "We deeply regret our failure to detect the Madoff fraud and pledge to continue to fix the problems that contributed to this failure," he and acting director of exams and compliance John Walsh added.
Mr Rajaratnam's arrest is probably the first step as the SEC attempts to restore investor confidence.