The U.S. Securities and Exchange Commission charged a hedge fund founder and his firm over alleged insider trading.

The SEC announced Friday that it has charged Raj Rajaratnam and his New York-based hedge fund advisory firm Galleon Management LP “with engaging in a massive insider trading scheme that generated more than US$25 million in illicit gains.”

The SEC also charged six others involved in the scheme, including senior executives at major companies IBM, Intel and McKinsey & Company.

The SEC’s complaint, filed in federal court in Manhattan, alleges that Rajaratnam tapped into his network of friends and close business associates to obtain insider tips and confidential information about corporate earnings or takeover activity at several companies, and that he then used the non-public information to illegally trade on behalf of Galleon. None of these allegations have been proven.

Galleon Group LP issued a statement, saying, “Galleon was shocked to learn today that Raj Rajaratnam was arrested this morning at his apartment. We had no knowledge of the investigation before it was made public and we intend to cooperate fully with the relevant authorities. Galleon continues to operate and is highly liquid.”

“What we have uncovered in the trading activities of Raj Rajaratnam is that the secret of his success is not genius trading strategies. He is not the astute study of company fundamentals or marketplace trends that he is widely thought to be. Raj Rajaratnam is not a master of the universe, but rather a master of the rolodex,” said Robert Khuzami, director of the SEC’s division of enforcement. “He cultivated a network of high-ranking corporate executives and insiders, and then tapped into this ring to obtain confidential details about quarterly earnings and takeover activity.”

IE