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Sri Lanka shares tumble after US fraud charges

world Updated: Oct 19, 2009 19:57 IST
Sutirtho Patranobis
Sutirtho Patranobis
Hindustan Times
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Financial echoes of the arrest of arguably the world’s richest Sri Lankan, billionaire Raj Rajaratnam were felt in Sri Lanka on Monday with the Colombo Stock Exchange (CSE) trembling as the day began with panic-selling.

The US authorities have arrested and charged Rajaratnam with fraud after saying they had uncovered the biggest ever case of insider-trading by a hedge fund.

The business circles here were abuzz with worried conversations about the implications of his arrest on the hundreds of millions of dollars that Rajaratnam had invested in Sri Lanka since 2003, a year after the government signed a truce with the LTTE.

On its part, the Lankan government vowed to investigate the Wharton Business School-educated Rajaratnam’s LTTE links.

In a carefully-worded statement, the Central Bank said: "investigations are yet continuing in relation to the funding allegedly provided by Raj Rajaratnam to the TRO (Tamil Rehabilitation Organisaton). Accordingly, any reports that suggest that such investigations are concluded or that Rajaratnam has been cleared of possible involvement are incorrect and misleading."

At one point, he was possibly the largest single investor in the country with stakes in NDB and DFCC banks and the John Keells company among others. "He still owns 7 per cent to 10 per cent in at least 10 top Lankan companies,’’ a broker said.

A Tamil from Colombo, Rajaratnam’s home was in the fashionable 'Colombo 7' area. His father was the country head of the MNC Singer and had transferable job. Rajaratnam studied in schools in Sri Lanka, India and the UK and is married to a Sikh from Philippines with whom he has three children. Two Indians arrested along with Rajaratnam were also from the Wharton Business School.

Friends said Rajaratnam was deeply involved in charity. "Rajaratnam gave millions of dollars in charity here and not to Tamil-dominated areas alone. After the tsunami, he carried out housing projects in Hambantota, Galle in the south and Kalmunei in east where the Sinhalese and Muslims are in majority," friend and broker Murtaza Jafferjee said.

Another friend raised doubts about his links to the LTTE. "The Tamil Rehabilitation Organisation (TRO), which he is accused of funding, was a legitimate charity organisation till the end of 2006. After tsunami, if someone wanted to carry out a rehabilitation project in LTTE-controlled areas, he had to go through the LTTE," the friend said, adding that the money he gave was used to build houses in Mullaitivu, the military-stronghold of the LTTE. AFP reported that Sri Lanka's justice ministry thanked Rajaratnam last month for donating a million dollars to rehabilitate child soldiers conscripted by the Tigers, defeated by government forces in May.

Channa De Silva, director general of the Securities Exchange Commission of Sri Lanka told HT that the commission was carefully going over all business transactions involving Rajaratnam. "We are yet to find any securities-related illegal transactions (by him). We know he has sizeable stakes in many companies. We are still collecting data," he said.