3:30 PM New York – Prosecutors charged billionaire hedge fund manager Raj Rajaratnam with insider trading scheme. The prosecutors used for the first time wiretaps in an insider trading case in recent years. The investigation lasted nearly four years and snarled executives at Intel, IBM and McKinsey & Co Inc.

Raj Rajaratnam a majority partner in Galleon Management and a portfolio manager of Galleon Group was arrested on Friday and charged with insider trading case that authorities say yielded more than $20 million to its participants. The Galleon founder prosecution is the largest hedge fund case pursued by the authorities with the help of wire tapping.

Rajaratnam was arrested at his home in New York this morning after 6:00 am ET and charged with four counts of conspiracy and nine counts of securities fraud.

Considering Rajaratnam as a flight risk and the gravity of prosecution’s allegations U.S. Magistrate Judge Douglas F. Eaton set a high bail of $100 million secured by $20 million in assets by his wife and four others. Rajaratnam was released after the bail posting.

A different judge had set a bail of $10 million for Bernard Madoff, the New York financier who ran a Ponzi scheme where investors are alleged to have lost as much as $50 billion.

Others arrested in New York were freed after they posted between $2 million and $5 million and Rajaratnam surrendered his passport.

It is illegal to profit from stock trading based on information that is not released to the public. The prosecutors say they have linked illegal sharing of market moving information not shared to public but disclosed by top executives for personal gains to a select group of people.

And, Rajaratnam is at the center of the scheme.

Rajaratnam, 52, is known among investment management community for his technology and healthcare investing strategies and has a long history of successful investing in high growth sectors dating back to early nineties when he worked at Needham & Company.

His trading strategies focused on tech companies that were likely to surprise the market with their earnings miss or excess when compared to market expectations.

Galleon Diversified Fund with assets of $1.2 billion in September 2009 and total asset under management of $3.4 billion. The diversified fund lost money only in 2008 since its inception in 1997 and chalked up 21.75% annual returns compared to 7.8% for the S&P 500 index according to its latest letter to shareholders reviewed by 123jump.com.

Asset managers are under enormous pressure to deliver returns that exceed market returns. The sheer competitive nature and the rapid trading in the age of milliseconds driven program-trading have traders look for information advantage through non-traditional strategies.

Galleon Management at its peak managed $7 billion and was sought after for its above average returns in technology and healthcare sectors. Six funds managed by the company have positive returns so far in the year ending in September with the Diversified Fund gaining 22.27%.

The regulators at SEC and FBI have stepped their investigation of investment industry after the Bernard Madoff scandal.

U.S. Attorney Preet Bharara at a press conference said that this was the first hedge fund case where court authorized wiretaps were used and he left with the impression that it may become a standard tool at SEC to investigate securities fraud.

Reviewing court papers, the alleged insider trading scheme may have been entrenched well before the beginning of the current investigation in 2007 and may be widespread than few that have been charged with.

Rajaratnam was known in the industry to make outsized bets on few select stocks and many have yielded outsized gains in the past before the investigation began. The prosecution is expected to bring additional charges against Rajaratnam as they file more evidence in the court.

“He is not the master of the universe. He is a master of the Rolodex,” said Robert Khuzami, director of enforcement at the Securities and Exchange Commission.

Rajaratnam was born in Sri Lanka and obtained a masters degree from Wharton School of Management, University of Pennsylvania and is one of the most active investors on the Colombo Stock Exchange as well.

Forbes estimated Rajaratnam with a net worth of $1.3 billion and ranked him as the 559th wealthiest person in the U.S. in its latest report. However in court, Rajaratnam said he was worth $200 million.