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On Friday, October 16th, Raj Rajaratnam, a Sri Lanka national and hedge fund manager was arrested at his Manhattan home and charged with insider trading by the US Justice Department and the Securities and Exchange Commission (SEC).  As the manager of  Galleon Management LP, a  Wall St. hedge fund, Rajaratnam is accused of running a network of IT and health care company insiders who helped him amass $20 million in profits in the past three years.

As it turns out, in addition to benefiting from private information while making trades for his fund’s hedgers, Rajaratnam also cashed in on public largesse through his corporations’ access to generous loans from the World Bank Group.  

Rajaratnam, who is now US-based, is one of the largest foreign investors in publicly traded Sri Lankan corporations.  He is the second principal investor in John Keells Holdings, Ltd. (JKH), the largest Sri Lankan conglomerate in the country, and he's an important investor in Dialog, the national telecom firm.  Rajaratnam’s hedge fund also is a principal stockholder in the National Development Bank of Sri Lanka (NDB) and the Commercial Bank of Ceylon (CBC).  All four companies collected credit from the International Finance Corporation (IFC) – the private sector lending arm of the World Bank Group – over the past two years. The NDB established a risk-sharing facility with the IFC for up to $30 million two months ago. The CBC collected an investment from the IFC of $60 million in July 2008; JKH finalized a lending facility for up to $100 million in February, 2008, and Dialog’s most recent IFC loan amounted to another $100 million in August, 2007.  

Well before the IFC loans were approved for companies in which Rajaratnam had a major stake, his reputation was, well, dubious. He had been investigated and fined nearly $2 million by the SEC in 2005 for "improper short-selling" of 17 stocks.  In 2007, a charity he had strongly supported was closed down for funneling donations to the Tamil Tigers insurgency in Sri Lanka.

At the time the IFC loan for JKH came Rajaratnam’s way, the company’s reputation for integrity was also highly suspect.  The corporation had effected an extremely smelly privatization deal that was under review by the Supreme Court of Sri Lanka, and four months after the IFC finalized its loan to JKH, the company’s Chairman was found to have worked "to secure illegal advantages....adverse to the public interest."  The privatization deal manipulated by JKH was reversed by the Court as ‘unlawful.’  The Sri Lankan Secretary to the Treasury admitted violating the Sri Lankan Constitution as well as his oath of office for handing over to JKH a prosperous, revenue-producing state asset  for a fraction of its real value, and structuring the deal as a private monopoly on essential port services.

Despite its history of backing Rajaratnam's Sri Lankan investments well after serious questions had been raised about the hedger's ethics, the IFC posts the following statement on its website:
"The IFC is at the forefront of the market and of development institutions in guarding against fraud and corruption in its projects. This approach complements and supports IFC's determination to act as a leader on sustainability. Avoiding fraud and corruption is necessary to ensure that IFC's investments are successful, that its resources are being used effectively, and that its development objectives are met."

Oh, please.

Originally posted to Bea Edwards on Tue Oct 20, 2009 at 08:06 AM PDT.

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Comment Preferences

  •  Not Sure Exactly What the Outrage Is (1+ / 0-)
    Recommended by:
    RationalMan

    Loans are off limits to billionaires?

    These loans weren't repaid, with interest?  These loans are a quid pro quo deal for which you forgot to supply evidence?

    What, exactly, is the shady dealing and defrauding that you imply exists in the IFC granting these loans?

    Not that Raj isn't rightfully in trouble for how he made his billions.  Still. . .I'm waiting for some facts to base the outrage in your diary, other than Raj's "character faults."  

    "Give me but one firm spot to stand, and I will move the earth." -- Archimedes

    by Limelite on Tue Oct 20, 2009 at 08:17:49 AM PDT

  •  Why the outrage (3+ / 0-)
    Recommended by:
    seattledoglover, kurt, Earth Ling

    Well, outrage may be too strong a word for it, given the general cynicism in the air.

    However, yes. IFC loans should be off limits to billionaires, as billionaires are typically able to borrow commercially, and the IFC is promoting development that would otherwise not occur.

    It is doubtful whether the loans can be repaid with interest now that RR, virtually singlehandely is weighing down the Colombo stock exchange today and yesterday.  John Keells Holdings, in particular, looks to be in trouble.

    Like any investor, the IFC should conduct due diligence, which would have turned up RR's dubious dealings in '05 and '07.  If these loans go bust, it's public money that's down the toilet.

    So, I guess that 'outrage' is the right word for it.

  •  More Bad News from the Colombo Stock Exchange (0+ / 0-)

    As of this evening in Colombo, JKH is down nearly 5% and NDB is down over 3.5%

  •  Hackjob! (1+ / 0-)
    Recommended by:
    northsylvania

    Raj Rajaratnam may well be guilty of insider trading and if proven should get everything he deserves. I know the guy slightly, but not enough to judge his culpability.
    One the other hand his investments in Sri Lanka were in large publicly traded companies like John Keels and the Commercial Bank. Rajaratnam is a minority shareholder at John Keels with less than 10% ownership (by some estimates 7%). I very much doubt if any World Bank loans to John Keels are due to Rajaratnam as it is common practice for third world companies to get low coast financing through the IFC.  

    Now there seems to be a very concerted effort by the Sri Lankan government and its corrupt supporters to either acquire the Rajaratnam's holdings in Sri Lanka at firesale prices using the bogeyman of "Tiger Supporter".

    It happens often in Sri Lanka. Tamil Businessmen are threatened with the "Tiger Supporter" name unless they pay up.

    Just recently, Muhunthan Canagey, a Tamil businessman was shaken down for $650,000 under "security considerations"

    Rs. 65 million "Gift" for Buddhist TV
    Picture shows Muhunthan Canagey handing over the keys of the studio to Director of The Buddhist TV Channel, Ven. Daranagala Kusaladhamma Thero

    By Mandana Ismail Abeywickrema

    Allegations of bribery and corruption have been levelled against former Chief Justice Sarath N. Silva in relation to his role in the formation of The Buddhist Broadcasting Services.

    The involvement of the main investor of The Buddhist channel launched by The Buddhist Broadcasting Services, Muhunthan Canagey in 2007 soon after Silva passed judgment on cases filed by him in the Supreme Court in 2006 has revealed a suspicious link between the duo.

    The equipment and The Buddhist channel had been donated by former CEO of Dialog TV (then known as CBNsat), Canagey.

    The set up of The Buddhist channel had cost Rs. 65 million (approximately US$ 600,000), which is stated as, "A kind gesture contribution by Muhunthan Canagey." The act is also considered as "one of the largest contributions (charitable) by an individual in the recent past in Sri Lanka."

    http://www.thesundayleader.lk/...

    Always forgive your enemies; nothing annoys them so much. Oscar Wilde

    by RationalMan on Tue Oct 20, 2009 at 09:11:44 AM PDT

    •  "Muslim Intern Spies" (0+ / 0-)

      GOP Lawmakers Dawdle While Muslim 'Intern Spies' May Be Conspiring Further
      Justin Elliott | October 19, 2009, 12:34PM

      Four Republican lawmakers have not submitted a request to the House sergeant at arms to investigate a threat that one of the four described as a terrorist-linked group possibly "running influence operations or planting spies in key national security-related offices."

      http://tpmmuckraker.talkingpointsmem...

      We have the threat of "Muslim Intern Spies" in the US. But these are the work of wackjobs, people far out of the mainstream.

      In Sri Lanka, Tamils face this on a daily basis. Any successful Tamil, could be threatened with the "Tiger Supporter" label and be made tp pay for the silence.

      From an interview with a ex senior policeman in Sri Lanka . http://www.thesundayleader.lk/...

      Q: What about discrimination against Tamils? There are many reports in Colombo of Tamils getting arrested and tortured?

      A: If police officers want money, they go arrest a Tamil. If the officer is given the money, the person is released. If not, he’s taken to jail. It happens less now, but it still happens. Of course, the government is trying its best to say that all communities are the same and that there’s no discrimination. But there’s discrimination. Go to the north, go to the IDP camps.

      Always forgive your enemies; nothing annoys them so much. Oscar Wilde

      by RationalMan on Tue Oct 20, 2009 at 09:20:08 AM PDT

      [ Parent ]

      •  Completely missing the point (0+ / 0-)

        What do Muslim intern spies have to do with Rajaratnam and John Keells?

        •  Let me explain to you... (0+ / 0-)

          ... if you havent got it already...
          You seem to be way, way overreaching to make the connection between Rajaratnam the World Bank.

          Rajaratnam may be a minority shareholder but is not on the Board of Directors.
          http://www.keells.com/...

          And John Keells is one of the best mananged companies in Asia according to Forbes.

          Asia's 200 Best Under A Billion
          From Forbes Asia, 21 September 2009

          Forbes Asia Magazine recently listed the best 200 Asia Pacific companies, earning revenues under a billion dollars a year. The winners were picked from 25,326 publicly listed companies. John Keells Holdings PLC (JKH) is the only company from Sri Lanka on the list.

          Extract from the Forbes article:
          "This year's list of the best small- and mid-sized companies throughout the Asia Pacific region is chock-full of survival stories and lessons for entrepreneurs. Unprecedented dislocations in the global economy disrupted supply chains over the past 12 months, froze lines of credit, depleted consumer coffers and sent business spending into hibernation. The 64 companies returning from last year are a testament to fearless management; 136 new entrants have seized opportunities arising from the economic uncertainty."

          Magazine article:

          http://www.forbes.com/...

          http://www.keells.com/...

          I am not sure your what your issues are...

          Rajaratam maybe a crook, maybe not.. but to link him to JHK and WORLD BANK is an overstretch.

          And the Supreme Court Of Sri Lanka is corrupt to the core, just as the Government is...

          A three-member bench headed by then Chief Justice Sarath N. Silva heard the case.

          However, the Supreme Court finally ordered that CBNsat facilities be sold to Dialog Telecom.

          Following the purchase of CBNsat facilities, Dialog Telecom commenced Dialog TV under Canagey.

          In 2007, Canagey decided to donate equipment and facilities amounting to Rs. 65 million initially purchased for CBNsat to establish The Buddhist channel.

          Interestingly, Silva, who heard the cases filed by Canagey in 2006, is a director in The Buddhist channel launched in 2007.

          Silva however has denied any link between himself and Canagey.

          If as stated by the former Chief Justice, there was no connection between Canagey’s litigation and The Buddhist channel, then why Canagey chose to make such a massive contribution to set up a TV channel in which Silva played a key role is a question that  begs answer.

          http://www.thesundayleader.lk/...

          You still have not answered my question... What do you know about JKH? The Sri Lankan Business environment?

          Always forgive your enemies; nothing annoys them so much. Oscar Wilde

          by RationalMan on Tue Oct 20, 2009 at 12:23:59 PM PDT

          [ Parent ]

    •  John Keells Holdings, Ltd etc. (0+ / 0-)

      Actually, we have a report available on the role of JKH in the privatization of Lanka Marine Services -- reversed as 'unlawful' by the Supreme Court of Sri Lanka in 2008.

      Two privatization deals annulled by SC in Sri Lanka

      Lanka Marine Services Judgment

      FYI, a 5 or 6 percent holding in a company the size of JKH or NDB is a substantial holding. These are not your corner stores.

      •  No where in your link... (0+ / 0-)

        ... is Rajaratnam mentioned.  

        Overreach much?

        Always forgive your enemies; nothing annoys them so much. Oscar Wilde

        by RationalMan on Tue Oct 20, 2009 at 12:25:17 PM PDT

        [ Parent ]

      •  And if you know your facts... (0+ / 0-)

        you would have known that P. B. Jayasundara, the person who approved the deal is Mahinda Rajapakse, the President of Sri Lanka's bag man.

        Colombo, 28 September, (Asiantribune.com):

        Dr. P.B. Jayasundara was reappointed as the Secretary to the Treasury with immediate effect by the President Mahinda Rajapaksa.

        Dr. P.B. Jayasundara was one time Secretary to the Treasury and had to resign from the post in July, 2008 after a Supreme Court verdict which ruled that the sale of shares of Lanka Marine Services to John Keells Holdings by the then government in 2002 had violated fundamental rights.

        http://www.asiantribune.com/...

        Always forgive your enemies; nothing annoys them so much. Oscar Wilde

        by RationalMan on Tue Oct 20, 2009 at 12:31:41 PM PDT

        [ Parent ]

  •  I think the authorities need to look (0+ / 0-)

    more deeply into this issue.  Great diary.

    The Canary in the Coalmine is available for purchase at patriotictruthteller.net

    by Jesselyn Radack on Tue Oct 20, 2009 at 11:37:31 AM PDT

    •  I have to disagree... (0+ / 0-)

      .. Its a poorly researched hackjob, with a lot of overreaching.

      Always forgive your enemies; nothing annoys them so much. Oscar Wilde

      by RationalMan on Tue Oct 20, 2009 at 12:26:46 PM PDT

      [ Parent ]

      •  I suggest you read the Supreme Court Judgment (0+ / 0-)

        for the dirt done by JKH.  

        No disagreement from me, though, about PB Jayasundera.  Definitely a responsible party, who should never have been allowed back in government.

        BTW, there is now another motion before the Court to bar him again from public 'service.'

        •  JKH may have done, they may have not.... (0+ / 0-)

          .. I know people working at JKH and they are pretty decent people.
          My issue was with you connecting Rajaratnam with the World Bank Financing.

          There is absolutely no proof, and this is not to defend Rajaratnam. If he broke the law he MUST pay the price.

          My issue is that the Sri Lankan Government and its cronies maybe and most probabaly are  using Rajaratnam's New York troubles to buy his Sri Lankan assets at fire sale prices using the Tiger supporter label.

          It happened with Dialog.

          Always forgive your enemies; nothing annoys them so much. Oscar Wilde

          by RationalMan on Tue Oct 20, 2009 at 06:04:53 PM PDT

          [ Parent ]

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