The Galleon Group insider trading scandal continues to grip New York two weeks after fraud and conspiracy charges were brought against Raj Rajaratnam, co-founder and one of America’s richest men, and five others.

Prosecutors allege that the defendants generated more than $25 million in illicit gains by exchanging privileged information about quarterly earnings and takeover activities at a number of companies, including Hilton Hotels and Google.

Since the arrests, the media has been fed further allegations on a daily basis about America’s largest hedge fund insider dealing case. Recent twists include insinuations that Galleon had paid hundreds of millions of dollars to Wall Street banks in return for non-public company information.

New York’s fascination with the case hinges not just on its size, but also on the high-profile defendants, the deeper issues it raises about the nature of insider trading and the damage that it has done to the already tarnished image of the hedge fund industry.

Wiretaps used by the investigators, which are reminiscent of the tactics used against gangsters, have also spiced up the case.

So too have some quotes from Securities and Exchange Commission officials who said that Mr Rajaratnam’s exploitation of his business contacts made him a “master of the Rolodex” rather than a “master of the universe”.

In addition to the civil charges being brought by the SEC, Preet Bharara, the US Attorney in Manhattan, has brought criminal charges against the six, warning that the case should serve a wake-up call for Wall Street.

Mr Rajaratnam, 52, who has been released on $100 million bail (which he is seeking to reduce to $25 million), insists that the charges against him are baseless.

Sent as a child from his home in Sri Lanka to be educated in Britain, at Sussex University, and in the US, at the University of Pennsylvania’s Wharton School, he has turned the immigrant dream into reality by creating a hedge fund that made him a billionaire.

He is part of the influential Tamil diaspora and his spokesman has said he was on the point of creating a $200 million investment fund to provide jobs in Sri Lanka when he was arrested. Almost inevitably, he has also backed a Bollywood film.

Also charged are Robert Moffat, a senior executive at IBM, Rajiv Goel, a managing director at Intel Capital’s treasury department, Anil Kumar, a director at McKinsey & Co, and Danielle Chiesi and Mark Kurkland, from New Castle Funds, a New York hedge fund manager.

The scandal has led to an intense debate about what constitutes insider trading. On Wall Street knowledge is king and it is perfectly normal practice for hedge funds to employ armies of analysts to seek out any scrap of information that may give them an edge, from anecdotal evidence on sales trends to long-range weather forecasts that might have an influence on harvests.

Mr Rajaratnam was said to be relentless in driving his staff and his business contacts in the pursuit of intelligence and the assumption underlying the case is that he pushed this too far by trading on information that others had a fiduciary duty not to disclose.

US corporations — including IBM, Intel, McKinsey and other companies directly touched by the scandal — are now tightening up their internal information controls. Hedge funds and investment companies are re-examining their own information-gathering practices.

Mr Rajaratnam, meanwhile, has already liquidated about 90 per cent of the assets in his funds after the publicity surrounding the case had led some investors to remove their investments.

• Robert Moffat, a senior vicepresident at IBM, who has been charged in the Galleon case, was yesterday replaced by Rod Adkins as head of its mainframe, server and storage-device businesses. He has been on a temporary leave of absence since October 19.

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