Indicted Galleon hedge fund founder Raj Rajaratnam faces expanded charges of insider trading and allegations that he earned $36 million in illicit profits, double the amount previously alleged, U.S. prosecutors said on Tuesday.

The government, pursuing what it has described as the biggest hedge fund insider trading case ever, signaled its intention to add to charges against billionaire Rajaratnam in a memorandum asking a Manhattan federal court judge to revoke his bail.

Prosecutors said that while the indictment in December alleged that Rajaratnam was responsible for illicit profits of $17 million, at this time the government believes that the total illicit gains attributable to Rajaratnam's illegal trading are at least approximately $36 million.

The memorandum went on to say that the government plans to file a superseding indictment that will expand the charges set forth against Rajaratnam in the current indictment.

It said those would include insider trading between March and July 2006 over an acquisition of ATI Technologies Inc by Advanced Micro Devices Inc. It said the information came from an unidentified source to whom Rajaratnam began making large payments in exchange for inside information in or about 2004.

Rajaratnam's lawyer, John Dowd, said in a statement: An analyst's prediction that AMD would acquire ATI was widely reported in the press more than seven weeks before the acquisition was announced.

Prosecutors in the office of the Manhattan U.S. Attorney said in the memorandum to U.S. District Court Judge Richard Holwell that these changed circumstances militate in favor of detaining Rajaratnam rather than easing his bail conditions.

A hearing is scheduled for Friday on bail. Rajaratnam's lawyers have asked for his bail to be reduced to $20 million from $100 million. He has pleaded not guilty to the indictment and argued that evidence gathered through wire taps violated his constitutional rights.

Sri Lankan-born Rajaratnam, 52, a U.S. citizen, is the most prominent defendant among 21 people criminally or civilly charged in an insider trading case involving employees of some of America's best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp.

Rajaratnam and Danielle Chiesi, a former employee of New Castle Funds LLC, are the only two defendants indicted so far. The indictments returned on December 15 formalize charges of securities fraud and conspiracy to commit securities fraud against the pair, who were arrested on October 16.

Six traders or lawyers have pleaded guilty to criminal charges in the sprawling investigation, which ensnared employees on criminal or civil charges of IBM, McKinsey & Co management, Intel Capital, Moody's and lawyers of the Ropes & Gray law firm.

In the overall case, inside trading allegedly took place in shares of Google Inc, Sun Microsystems Inc, Advanced Micro Devices Inc, Polycom Inc, Hilton Hotels, Intel, Clearwire Corp, Akama Technologies Inc, Athero Communications Inc and IBM, among others.

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

(Reporting by Grant McCool; Editing by Richard Chang, Bernard Orr)

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