The Securities and Exchange Commission earlier today accused Kris Chellam , a former senior executive at Xilinx, of illegally passing along nonpublic information to convicted Galleon hedge fund manager Raj Rajaratnam.
Galleon used the tip to make approximately $978,684 in illegal profits as a result, according to the government.
In its report, the SEC says that Chellam turned over confidential company information in December 2006 that Rajaratnam used to short Xilinx stock.
The two were described as personal friends. Chellam, who had a "substantial investment in Galleon funds" according to the government, subsequently joined the hedge fund in May 2007.
Chellam has agreed to pay more than $1.75 million to settle the charges, according to the SEC.
"Chellam was entrusted with sensitive company information that he divulged to Rajaratnam knowing full well that Rajaratnam would trade on it," according to a statement from the SEC's Sanjay Wadhwa.
When Xilinx announced its second-quarter earnings in October 2006, it also offered guidance for the third quarter, projecting revenues of approximately $476 million to $490 million. But the SEC says that after learning the company planned to downwardly revise the top end of the projected revenue range, Chellam telephoned Rajaratnam with the tip. Rajaratnam then sold short more than 650,000 shares in the next couple of days, according to the SEC.
After leaving Xilinx to join Galleon, Chellam "continued to obtain confidential information about Xilinx's financial performance, which he tipped to Rajaratnarn and other Galleon colleagues with the expectation of receiving a benefit for doing so." The complaint said that Chellarn "knew, recklessly disregarded, or should have known, that the material nonpublic information concerning Xilinx that he obtained and tipped was disclosed or misappropriated in breach of a fiduciary duty, or similar relationship of trust and confidence."