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Galleon Group founder Raj Rajaratnam and five others have been arrested and charged in a $20 million insider-trading case, prosecutors said.

At a press conference Friday, U.S. Attorney Preet Bharara announced that Rajaratnam, founder of Galleon Group and portfolio manager for Galleon Technology Funds, has been charged with four counts of conspiracy and eight counts of securities fraud.

Galleon at one point had as much as $7 billion in assets under management. The company now has about $3.7 billion in assets under management.

"This is not a garden-variety insider-trading case," Bharara said. "This case represents the largest hedge-fund insider-trading case ever charged criminally."

Bharara also said he believed it was the first time that prosecutors had used a wiretap in an insider-trading case.

Rajaratnam, 52 years old, was taken into custody at his home in New York by agents of the Federal Bureau of Investigation shortly after 6 a.m. EDT on Friday.

At a bail hearing Friday, Jim Walden, a lawyer for Rajaratnam, said he believed the government's theory in the case was novel, noting prosecutors had argued in part that Rajaratnam encouraged an alleged co-conspirator to leave an email trial in order to help conceal the scheme.

"Isn't it usually the other way around?," Walden asked.

He also said that prosecutors and investigators appeared to have misconstrued terms Rajaratnam used in his business, such as "radio silence."

"They don't understand the business Mr. Rajaratnam was legitimately employed in," Walden said.

During the hearing, Rajaratnam wore a light blue shirt and dark pants. He repeatedly touched his face and slumped in his chair as the hearing went on. On some occasions, he shook his head "No" as the prosecutor discussed the allegations.

In court documents, prosecutors said Rajaratnam had expressed to another individual that he believed a former Galleon Group employee was wearing a wire and that Rajaratnam had purchased a plane ticket to fly to London on Friday from New York's John F. Kennedy International Airport. He had booked a return flight from Geneva on Oct. 22, prosecutors said.

A federal magistrate judge set bail Friday at $100 million for Rajaratnam. His travel is restricted to 110 miles from New York City. Prosecutors had sought his detention.

Assistant U.S. Attorney Joshua Klein said he believes Rajaratnam has an incentive to flee in part because he faces 97 months to 121 months in prison on the charges under federal sentencing guidelines.

Klein said Rajaratnam engaged in a "veritable smorgasbord of insider trading tactics," including engaging in a pattern of trading designed to "mask" his alleged improper activity.

"The defendant made his livelihood by engaging in insider trading," Klein said.

Others charged criminally in the case include Rajiv Goel, an Intel Corp. (INTC) employee involved in Intel's investments; Anil Kumar, a director at global management-consulting firm McKinsey & Co.; Danielle Chiesi and Mark Kurland of New Castle Partners LLC, the one-time equity hedge-fund group at Bear Stearns Asset Management Inc.; and Robert Moffat, a senior vice president at International Business Machines Corp. (IBM).

"Anil Kumar is as shocked as everyone else who know him to see his name in this complaint," said Charles E. Clayman, a lawyer for Kumar. "He is a man of integrity and honesty. He emphatically denies these charges."

Kerry A. Lawrence, Moffat's lawyer, said his client was "shocked" by the criminal charges. "We look forward to a favorable resolution of the case," he said.

Lawyers for Chiesi and Kurland declined comment Friday. A lawyer for Goel couldn't immediately be located.

Bharara, the U.S. Attorney, said the investigation is ongoing.

The Securities and Exchange Commission separately brought civil insider-trading charges against Rajaratnam and his company. The SEC also brought charges against the five other individuals who had been charged criminally and against New Castle. The regulator, in its civil case, claims the scheme netted more than $25 million in illicit gains.

In a statement, Galleon Group said: "Galleon was shocked to learn today that Raj Rajaratnam was arrested this morning at his apartment. We had no knowledge of the investigation before it was made public and we intend to cooperate fully with the relevant authorities. Galleon continues to operate and is highly liquid."

The allegations put Rajaratnam at the center of several insider trades in which he allegedly caused Galleon funds to act on inside information or passed along tips to others.

Robert Khuzami, the SEC's director of enforcement, said of Rajaratnam: "He is not a master of the universe; he's a master of the Rolodex."

In one instance, prosecutors allege that Rajaratnam, between January 2006 and July 2007, received nonpublic information about Polycom Inc. (PLCM), Hilton Hotels Corp. and Google Inc. (GOOG) and caused Galleon Technology Funds to make improper trades on that information. As a result, the Galleon funds earned more than $12.7 million, prosecutors said.

Google and Polycom declined to comment.

The sources included an insider at Polycom, a source at Moody's Corp. (MCO) who provided information pertaining to Hilton and a source at Market Street Partners who provided information pertaining to Google, prosecutors said.

"Moody's has strict policies against divulging confidential information, and the alleged wrongdoing by an individual at Moody's would be an egregious violation of Moody's policies and values," a Moody's spokesman said in a statement. "Moody's fully supports the government's prosecution of insider trading and will provide every assistance in its investigation of this matter."

The information was passed to Rajaratnam by an unnamed cooperating witness who has provided details of some of the alleged insider trading to prosecutors, according to court documents.

The cooperating witness, referred to as Tipper A in the SEC complaint, has known Rajaratnam since 1996 when Rajaratnam worked at a broker-dealer organization and the witness worked at a publicly traded company, according to the SEC.

The cooperating witness worked a brief time at Galleon in the late 1990s and later approached Rajaratnam about working again at Galleon after he faced financial difficulties in late 2005, the SEC said.

"In response, Rajaratnam asked whether Tipper A had inside information about any public companies," the SEC said in its complaint. The cooperating witness then agreed to provide Rajaratnam with information about Polycom in the hopes of securing a position at Galleon and "in anticipation of receiving future inside tips from Rajaratnam in exchange," the SEC said.

Walden, Rajaratnam's lawyer, said the cooperating witness has apparently agreed to plead guilty.

In another instance, Chiesi, the New Castle employee, allegedly received inside information regarding Akamai Technologies Inc. (AKAM) and Advanced Micro Devices Inc. (AMD) from an unnamed Akamai executive and Moffat, the IBM executive, prosecutors said.

IBM declined comment.

She allegedly passed the information to Rajaratnam, who allegedly provided her with information regarding AMD and other publicly traded companies, the government said.

As a result of information Chiesi allegedly received from Rajaratnam, Moffat and others, New Castle earned a profit of more than $2.4 million, prosecutors said.

As an example, Chiesi allegedly called Rajaratnam on his cellphone in a wiretapped telephone call on July 24, 2008, to tell him that Akamai was planning to "guide down" expectations for its earnings the following Wednesday and that, internally, the company expected its stock price was going to go down to $25 a share, prosecutors said.

Rajaratnam allegedly said he would be "radio silent" about the information and told Chiesi that she had "a few more days" before Akamai's report, prosecutors said. She allegedly replied "Just keep shorting every day. We got a lot of days..."

After Akamai announced that its expected earnings for the following quarter would be lower than analyst expectations, Rajaratnam allegedly called Chiesi to thank her for the information she provided, according to prosecutors.

A McKinsey spokeswoman said, "The firm was distressed to learn that Mr. Kumar has been arrested and is looking into the matter urgently."

Chuck Mulloy, an Intel spokesman, said, "We can confirm that Mr. Goel is an employee of Intel's treasury department, not Intel Capital. He's been placed on administrative leave as we look into this matter. Intel was not aware of the case and was not and has not been contacted by authorities."

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com

(Jenny Strasburg and Don Clark of The Wall Street Journal contributed to this article.)