Every weekday at 8:35 am, Galleon Group?s 70 analysts, portfolio managers and traders pack into a conference room on the 34th floor of the IBM Building, a gray-green polished granite skyscraper on New York?s Madison Avenue. Tardy arrivals are fined $25. At the head of the table, CEO Raj Rajaratnam fires off questions to the staff of his $3.7 billion hedge fund firm: Which companies? margins are peaking? What would change your mind about this stock? What?s the risk of that company failing to win an expected contract? The 52-year-old billionaire expects his analysts to have an edge: better information than anyone else, say people who have attended the meetings.

US prosecutors allege that Rajaratnam?s own edge was illegal. He has been charged with using inside information to trade shares. Five other defendants also were arrested in New York and California in a $20 million scheme that prosecutors say is the largest-ever insider trading case involving hedge funds. ?Every trader wants an edge, and there are many gray areas when it comes to aggressive research,? said Ron Geffner, a lawyer at New York-based Sadis & Goldberg LLP, whose clients include hedge funds. ?But if you trade on material, non-public information that comes from a company insider who is breeching his fiduciary duty, odds are that it is illegal.?

In the early years of this decade, Galleon was among the 10 largest hedge funds in the world, and it managed $7 billion at its peak in 2008. Galleon?s $1.2 billion diversified fund has climbed 21.5% a year, on average, since 1992, according to a September Galleon marketing document, compared with 7.6% for the Standard & Poor?s 500 Index of the largest US companies. The fund has returned 22.3% this year, according to an investor letter.

As Rajaratnam?s wealth grew, he and his wife Asha Pabla, who have three children, created a family foundation and have given money to fight AIDS in India. They donated $5 million to help the 2004 tsunami victims in his home country of Sri Lanka, where Rajaratnam was on vacation with his family when the disaster struck. In 2005, the foundation also donated $4,00,000 to the Tamils Rehabilitation Organisation in Cumberland, Maryland. Two years later, the US Treasury Department froze the assets of the charity, charging that it was a front for the LTTE, designated as a terrorist group 10 years earlier.

Born in Sri Lanka?s capital, Colombo, Rajaratnam was educated there at St. Thomas? Preparatory School before leaving for England, where he studied engineering at the University of Sussex. He came to the US to get his MBA, and graduated from the University of Pennsylvania?s Wharton School in 1983. His first job after graduation was at Chase Manhattan Bank, where he was a lending officer in the group that made loans to high-tech companies. In 1985, he joined Needham & Co as an analyst covering the electronics industry and rose through the ranks, becoming head of research in 1987, chief operating officer in 1989 and president in 1991. In January 1997, Rajaratnam and Needham colleagues formed Galleon Group. By the end of that year, they were managing $830 million, much of it from technology company executives Rajaratnam had gotten to know throughout his career. As the Internet bubble burst in 2000, the Galleon Diversified Fund climbed 43.7% in the three-year period ending 2002, while the Standard & Poor?s 500 Index dropped 37.6%. Galleon?s assets jumped to $5 billion by 2001, making it one of the 10 biggest hedge funds in the world.

Rajaratnam faces 13 fraud and conspiracy counts, many of which carry 20-year maximum sentences. Under federal sentencing guidelines, he faces 10 years in prison if convicted at trial. Prosecutors also charged Rajiv Goel, who worked at Intel Capital as a director in strategic investments, Anil Kumar, who worked as a director at McKinsey, IBM executive Robert Moffat, and former officials at Bear Stearns Asset Management Danielle Chiesi and Mark Kurland, who were affiliated with the firm?s $1 billion New Castle Partners. The government?s complaint quotes conversations between Chiesi and Rajaratnam, including a July 24, 2008, discussion that they allegedly had after she spoke to the person at Akamai. That day, Akamai stock had closed at $32.18. ?Akamai,? Chiesi told Rajaratnam, according to the complaint. ?They?re gonna guide down. I just got a call from my guy.?

Retaining top managers and holding on to clients may prove challenging in light of the investigation, said Craig Lilly, a Palo Alto, California-based attorney at Squire, Sanders & Dempsey LLP, whose clients include hedge funds. ?This may spell the end of the firm,? Lilly said. ?They will probably face a tremendous wave of redemptions as well as brain-drain as senior people head for the exit door.?