His brother turned out to be a poor role model. On Thursday, prosecutors said that Rengan was a pawn in Raj's insider trading conspiracy, announcing charges against him nearly two years after his brother's conviction.
"As alleged, Rengan Rajaratnam and his brother shared more than DNA; they also shared a penchant for insider trading," said Preet Bharara, the U.S. attorney in Manhattan.
Rengan Rajaratnam, 42, is now thought to be living in Brazil. Federal authorities have yet to arrest him and are in the process of using extradition laws to return him to the United States.
A lawyer for Rengan, David C. Tobin, did not return calls for comment.
Although a much less influential player on Wall Street than his brother was, Rengan is seen as a seminal figure in the government's broad inquiry into insider trading at hedge funds.
The origins of the investigation, which has led to 77 prosecutions of hedge fund employees and corporate executives, stretch back more than a decade. But a crucial breakthrough came in 2006 during an inquiry by the Securities and Exchange Commission into Sedna Capital, a small hedge fund run by Rengan Rajaratnam. While reviewing emails and instant messages, securities regulators discovered damning communications between Rengan and his brother.
During Raj Rajaratnam's trial, prosecutors played for the jury several secretly recorded incriminating conversations between Raj and Rengan, who had by then joined his brother at the Galleon Group hedge fund. Prosecutors identified Rengan as an unindicted co-conspirator in the case.
Early in his career, Rengan worked briefly at Morgan Stanley and, for eight months, at SAC Capital Advisors, the hedge fund run by investor Steven A. Cohen.
Cohen let go of Rengan in early 2004 after a shouting match between the two erupted on SAC's trading floor, according to "The Billionaire's Apprentice," a soon-to-be published book by Anita Raghavan on the rise of the South Asian elite and the fall of Galleon. Cohen was displeased with Rengan's performance; Rengan was unhappy with his pay.
Out of courtesy to his fellow billionaire hedge fund manager, Cohen called Raj to break the news.
"Someone came up to me on the floor and he was complaining about something, so I fired him," Cohen said. "The bad news is that it was your brother."
Prosecutors are investigating illegal trading at SAC and have brought criminal charges against several former SAC traders. Cohen has not been charged with any wrongdoing.
After leaving SAC, Rengan started Sedna. By mid-2006, Sedna was a small fund managing about $80 million. But its uncanny timing on a handful of trades was brought to the government's attention by an executive at the Swiss bank UBS, which provided services to Sedna.
In December 2006, lawyers at the SEC took Rengan Rajaratnam's deposition. Sedna closed around that same time, and he joined Galleon.
In the indictment filed Thursday, prosecutors accused Rengan of conspiring with Raj in 2008 to illegally trade in the technology stocks Clearwire and Advanced Micro Devices. Rengan made almost $1.2 million in profits on the trades, the government said. The SEC also filed a parallel civil action against Rengan.
"Our complaint against Rengan Rajaratnam tells a sad tale of a man who followed his brother down an illegal path of greed to its inevitable conclusion," said George S. Canellos, the SEC's acting director of enforcement.
Among the calls heard by jurors at Raj's trial was one from August 2008 during which Rengan told his brother about his efforts to press a friend, a consultant at McKinsey & Co., for confidential information. Rengan called the consultant "a little dirty" and boasted that he "finally spilled his beans" by sharing corporate secrets.
Another former Galleon employee, Adam Smith, also testified that on the day of Raj's arrest in October 2009, Rengan took his brother's notebooks from an office at Galleon.
Raj and Rengan have a middle brother, Ragakanthan, who goes by R.K. and also worked at Galleon. R.K. was involved in a trade of Procter & Gamble shares that was at the centre of the trial of Rajat K. Gupta, a former head of McKinsey found guilty last year of passing secret corporate information to Raj Rajaratnam.
R.K. has not been charged with any crimes.