Legal News

Not Charged, But Not Off the Hook, a Private Equity Banker Waits

By Ashby Jones

The recent rapid-fire pace of the arrests in the Galleon Group saga might lead one to conclude that everyone on Wall Street is on the FBI’s insider-trading watch list.

But an interesting story in today’s WSJ about a case against a Blackstone Group banker by erstwhile LB-writer Peter Lattman shows just how hard it is for the government to bring these cases — and win.

We like the old-school anecdotal lead:

On a mild evening last January, federal agents met Ramesh Chakrapani as he stepped off a plane at New York’s John F. Kennedy International Airport. The 33-year-old Blackstone Group LP banker spent the next three nights in a Manhattan prison cell, charged by the Justice Department and Securities and Exchange Commission with tipping off a friend about the 2006 acquisition of grocery-store chain Albertson’s Inc.

Blackstone immediately suspended the London-based Mr. Chakrapani, who was accused of using phone calls and text messages to alert the friend, a financial analyst who allegedly made $3.5 million.

“I am personally infuriated that one person’s behavior could damage our unblemished record built up over nearly a quarter century,” wrote Blackstone Chief Executive Stephen Schwarzman in a firmwide memo the day after the arrest.

However, writes Lattman, the case didn’t go exactly as planned for the government. In April, the government dropped its criminal case against Chakrapani (pictured) without explanation. Last month, the SEC also asked a judge to dismiss its charges without giving a reason.

But it isn’t clear whether Chakrapani’s legal troubles are over. The Justice Department has dismissed the case “without prejudice,” meaning it can refile charges. The SEC also asked to dismiss its case against Chakrapani without prejudice.

And that means Chakrapani is in a sort of legal purgatory. Today, he lives at his parents’ home in Cerritos, Calif., reading books and volunteering at his church. “He is in total limbo,” said his lawyer Michael Sommer, a partner at Wilson Sonsini Goodrich & Rosati in New York, in a court hearing last month.

In January 2006, an investor group including buyout shop Cerberus Capital Management LP acquired Albertson’s for $9.6 billion. Chakrapani worked on the transaction as an adviser to Alberston’s.

Federal prosecutors charged Chakrapani in January with tipping his unnamed friend, a financial analyst who is branded a co-conspirator in the complaint, about the pending Albertson’s deal.

It’s unclear why the Justice Department and the SEC have backed away from the charges against Chakrapani. But Richard Sullivan, the federal judge in Manhattan overseeing the cases against Mr. Chakrapani, has expressed concern over Chakrapani’s situation. He denied a request by the Justice Department to postpone the SEC proceedings.

Chakrapani’s lawyer argues that Chakrapani should either face trial, or have the charges dropped with prejudice. “We’re frustrated that the SEC, after having leveled its accusations nearly a year ago, continues to take steps to deny Ramesh his day in court,” Sommer said.

Full post as published by Law Blog - WSJ.com on December 17, 2009 (boomark / email).