Galleon whistleblower ‘used insider information’

The woman who tipped off the authorities about a suspected trading scandal at hedge fund giant Galleon Group was a former employee who offered inside information to get her job back.

Hedge fund manager Roomy Khan briefly worked for the now-collapsing Galleon in the late Nineties and sought to rejoin the New York firm in 2005 when she hit financial trouble.

Securities and Exchange Commission papers claim Galleon co-founder and billionaire Raj Rajaratnam, who was arrested on Friday and last night decided to close the hedge fund, asked if she had any inside information about any public companies.

The SEC complaint alleges that Khan said she could get access to inside information regarding Polycom, a California-based maker of audio products.

Khan, 51, said she could provide information about Polycom "in the hopes of securing a position with Galleon, and in the anticipation of receiving future inside tips from Rajaratnam in exchange".

Although Khan did not get the job, investigators allege she and Rajaratnam traded shares in Polycom after she found out that 2005 fourth-quarter earnings would be better than expected.

In 2007, it is alleged Khan "arranged to pay" $10,000 (£6000) to a junior Moody's analyst for inside information on a takeover of Hilton Hotels.

It is claimed Khan made a profit of $630,000 by betting Hilton shares would rise while Rajaratnam is said to have made a profit of $4 million.

Shortly after, Khan is alleged to have got a tip regarding Google from a firm which did public relations work for the company.

Khan is said to have made a $500,000 profit and Rajaratnam $9.3 million.

Rajaratnam, who is now facing insider dealing charges, insists he is innocent.