The $100 million bail for Galleon's founder sends a major message

On Friday, FBI agents arrested Raj Rajaratnam, founder of the Galleon Group Hedge fund, at his Manhattan home. Charged with running an insider trading scheme, he was hit with what may be the biggest bail bond in U.S. history: $100 million. By comparison, Bernie Madoff and Tyco CEO Dennis Kozlowski each paid a relatively paltry $10 million. In fact, Rajaratnam's nearest New York competitor is probably Mikhail Sorodsky, a Brooklyn man who allegedly molested eight women while practicing medicine without a license. His bond was set at $33 million in September.

Some analysts have suggested that Rajaratnam's arrest and huge bail signify that a new sheriff is in town. The Securities & Exchange Commission, whose reputation was left bruised and battered by the Madoff affair, seems to be using this recent arrest to send a message that the government will no longer wink at wrongdoing, including the misuse of nonpublic information.

While the crackdown on insider trading isn't particularly surprising, the government's extensive use of wiretaps and confidential witnesses seems designed to make clear to put a chill into bad guys: The government may be listening in on any line and is prepared to turn any witness.

For any government agency looking to make a high-profile collar, Rajaratnam is a nice big target. Ranked number 236 on Forbes 2009 list of the 400 richest Americans, Rajaratnam ran a firm with an estimated $7 billion in assets, and his personal net worth is calculated at roughly $1.3 billion. Well known for his generosity, he donated large amounts of money to a wide variety of causes -- among them the Tamils Rehabilitation Organization, which the U.S. Treasury has identified as a front for Sri Lanka's Tamil Tigers terrorist group.

Apart from sending a message to Wall Street, Rajaratnam's outsize bond also suggests a turning point in the U.S. justice system, in which courts levy bail on defendants who could be a flight risk or a threat to the community. Basically, the system works like this: A judge decides on a bail amount needed before releasing a defendant from jail while he or she awaits trial. The defendant then hires a bondsman, who posts the sum in return for a 10%-12% nonrefundable deposit. If the defendant fails to show up in court, the bondsman forfeits the bail. To recover his loss, he hires a bounty hunter to retrieve the fugitive; the bounty hunter and bondsman both get their money when they turn in the fugitive.

Something similar to this happened in the Roman Polanski case. Charged with unlawful sexual intercourse in 1977, he chose to leave the country rather than face prosecution. For the last 32 years, the movie director has lived in France, fighting extradition to the U.S. Following his recent arrest in Switzerland, however, it appears that he'll probably be brought back to stand trial in Los Angeles.

Polanski probably didn't require the services of a bondsman because his bail was set at a paltry $2,500. For many defendants, however, the bondsman is a basic part of the judicial process, given that even people charged with relatively routine crimes are often hit with large bail judgments. But there's a limit to how much money bondsmen will put up, and judges have recently shown a growing tendency to use gargantuan bond judgments to ensure that wealthy defendants will finance their own prison release. Madoff, for example, paid his own bail, and he also had to provide the names of friends who would vouch for him. Similarly, Rajaratnam put up his own bail.

This is how bail functions in much of the rest of the world, where bail bondsmen are illegal. In Austria, for example, when banker Julius Meinl V was charged with fraud in early 2009, he was required to put up his entire bail. His bond, which was set at $133 million, was the largest in history, seriously eclipsing the $100 million that Rajaratnam had to put up.

Perhaps the famously competitive Rajaratnam is feeling a little stung.

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