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NY judge declines to drop charges against brother of one-time billionaire hedge fund founder

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NEW YORK — A judge has declined to toss out federal fraud charges against the brother of a one-time billionaire hedge fund founder, though she noted that two charges have flaws that the government must fix.

U.S. District Judge Naomi Reice Buchwald said in a ruling filed Friday that the indictment brought against Rengan Rajaratnam adequately describes the crimes against him. Rajaratnam last year was indicted in the case that resulted in an 11-year prison sentence for his brother, Raj Rajaratnam.

Rengan Rajaratnam, 43, was charged with conspiracy to commit securities fraud and five counts of securities fraud. He has pleaded not guilty. Lawyers in the case did not immediately return messages for comment Friday.

The judge wrote that two counts in the indictment allege that the defendant directed certain traders to carry out illegal trades even though the government has also alleged that his brother caused the trades while Rengan Rajaratnam merely offered indirect aid. She called the counts inconsistent and said the government must drop them or offer a "coherent, logical theory as to how defendant aided and abetted the alleged securities fraud."

The government has said Raj Rajaratnam had earned as much as $75 million illegally by trading on inside information provided by friends who were fellow money managers or corrupt employees of public companies.

Federal prosecutors said Rengan Rajaratnam had earned nearly $1.2 million illegally on 2008 trades involving Clearwire Corp. and Advanced Micro Devices Inc.

The brothers are part of a prosecution that has resulted in more than two dozen convictions.

Prosecutors say extensive use of wiretaps for the first time in an insider-trading probe is a reason for the success.

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