2ND UPDATE:Galleon Holdings Include OSI Pharma,Huron Consulting
October 19 2009 - 4:21PM
Dow Jones News
The stocks of a few small companies could be unintended victims
of Galleon Group's problems.
Galleon, the hedge-fund manager whose founder, Raj Rajaratnam,
was arrested Friday on charges of insider trading, recently owned
3% of the outstanding shares of OSI Pharmaceuticals Inc. (OSIP) and
5.9% of Huron Consulting Group Inc. (HURN), among other companies,
according to SEC filings.
Galleon Group's equity portfolio also holds relatively small
positions in many large stocks, but its stakes in some smaller
companies could cause ripples in the small- and micro-cap space if
the hedge-fund firm is forced to quickly sell shares.
Rajaratnam's lawyer has insisted his client isn't guilty of the
charges. But investors in the group's funds could follow the lead
of Rochdale Investment Management, which said Monday it was
liquidating its stake in the Galleon Diversified fund. If enough
investors left Galleon, managers at the firm could be forced to
sell shares of companies it owns in order to meet those
redemptions.
Galleon could also seek to prevent investors from redeeming
money immediately.
Huron shares closed Monday up 2.5% at $24.48 while OSI shares
were up 0.4% to $32.04. Galleon's OSI stake was reported as of June
30. OSI has a stock-market capitalization of about $1.9 billion,
according to FactSet Research Systems Inc. Galleon's stake in Huron
was reported as of mid-August. Huron, with a stock market
capitalization of $524 million, provides operational and financial
consulting to other companies' management teams.
In August, Huron shares plummeted to an all-time low when it
announced that its dual chairman/chief executive, as well as its
chief financial officer, were quitting and that the company would
restate three years of financial results. The stock has more than
doubled since the August announcements, but is still down almost
60% this year. Huron didn't immediately return calls seeking
comment.
An OSI spokeswoman said the company is aware that Galleon owns
shares in OSI, but declined further comment on anything else
related to Galleon.
Galleon also owned, as of June 30, more than 6% of the
outstanding shares of Hutchinson Technology Inc. (HTCH), which
supplies technology for computer disk drives and has a market
capitalization of less than $200 million. Hutchinson's shares
closed unchanged Monday at $6.85. A company spokeswoman didn't
immediately return a call seeking comment.
The biggest chunk of Galleon's U.S. holdings are very large
stocks such as eBay Inc. (EBAY), Apple Inc. (AAPL) and Google Inc.
(GOOG). It's unlikely that sales of these stocks by Galleon would
cause much impact on their share prices. After all, Galleon's $100
million-plus position in eBay represents less than 0.5% of eBay's
outstanding shares, according to filings. According to its most
recent filings, Galleon also owns nominal stakes in Bank of America
Corp. (BAC) and JPMorgan Chase & Co. (JPM).
The specific hedge fund managed by Rajaratnam is a technology
fund.
Galleon's troubles already had an impact Monday in Sri Lanka,
where Rajaratnam was born and is a citizen--he is also a citizen of
the U.S. Many of Galleon's top holdings, including John Keells
Holdings PLC (JKH.SL), Commercial Bank of Ceylon PLC (COMB.SL) and
National Development Bank (NDB.SL), are traded on the Colombo Stock
Exchange in Sri Lanka. That market's benchmark lost as much as 3%
early Monday, and ended down 1.6%.
Gauging how much impact one seller could have on a stock isn't
an exact science. In September and October, hedge-fund manager
Eastbourne Capital Management liquidated its entire stake in Amylin
Pharmaceuticals Inc. (AMLN), a company in which it owned 12.5% of
outstanding shares. Amylin's stock was barely affected.
On Friday, after the arrests of Rajaratnam and five others
accused in the $20 million insider-trading ring, a spokesman for
Galleon said the firm was "shocked" at Rajaratnam's arrest and
intends to cooperate fully, adding: "Galleon continues to operate
and is highly liquid."
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com
(Eric Bellman and Thomas Gryta contributed to this article.)