2nd UPDATE: Galleon's Rajaratnam, Others Charged In Insider Case

Galleon Group founder Raj Rajaratnam and five others have been arrested and charged in an $20 million insider-trading case, prosecutors said.

According to court documents, Rajaratnam, the founder of the Galleon Group and portfolio manager for the Galleon Technology Funds, has been charged with four counts of conspiracy and eight counts of securities fraud.

Galleon, at one point, had as much as $7 billion in assets under management. As of March 2009, Galleon reported to the U.S. Securities & Exchange Commission that it had $2.6 billion in assets under management.

Others charged criminally in the case include Rajiv Goel, director in strategic investments at Intel Corp.'s (INTC) investment arm; Anil Kumar, a director at global management-consulting firm McKinsey & Co.; Danielle Chiesi and Mark Kurland of New Castle Partners LLC, the one-time equity hedge fund group at Bear Stearns Asset Management Inc.; and Robert Moffat, a senior vice president at International Business Machines Corp. (IBM).

A call to Galleon Group wasn't immediately returned Friday.

Preet Bharara, the U.S. Attorney in Manhattan, is expected to discuss the case in more detail at a press conference at 1 p.m. EDT Friday.

He will be joined by representatives from the Federal Bureau of Investigation and the SEC.

The allegations put Rajaratnam at the center of several insider trades in which he allegedly caused Galleon funds to act on inside information or passed along tips to others.

In one instance, prosecutors allege that Rajaratnam, between January 2006 and July 2007, received nonpublic information about Polycom Inc. (PLCM), Hilton Hotels Corp. and Google Inc. (GOOG) and caused Galleon Technology Funds to make improper trades on that information. As a result, the Galleon fund earned more than $12.7 million, prosecutors said.

In another instance, Chiesi, the New Castle employee, allegedly received inside information regarding Akamai Technologies Inc. (AKAM) and Advanced Micro Devices Inc. (AMD) from an unnamed Akamai executive and Moffat, the IBM executive, prosecutors said.

She allegedly passed the information to Rajaratnam, who allegedly provided her with information regarding AMD and other publicly traded companies, the government said.

As a result of information Chiesi allegedly received from Rajaratnam, Moffat and others, New Castle earned a profit of more than $2.4 million, prosecutors said.

As an example, Chiesi allegedly called Rajaratnam on his cell phone in a wiretapped telephone call on July 24, 2008, to tell him that Akamai was planning to "guide down" the next Wednesday and internally the company expected its stock price was going to go down to $25 a share, prosecutors said.

Rajaratnam allegedly said he would be "radio silent" about the information and told her she had "a few more days" before they report, prosecutors said. She allegedly replied "Just keep shorting every day. We got a lot of days..."

After the company announced its expected earnings for the following quarter would be lower than analyst expectations, Rajaratnam allegedly called Chiesi to thank her for the information she provided, according to prosecutors.

(Jenny Strasburg of the Wall Street Journal contributed to this story.)

-By Chad Bray, Dow Jones Newswires; 212-227-2017; [e-mail]