Dozens of employees at Galleon Group are hunting for new jobs as investors debate how to react after the hedge fund's founder was arrested and charged with running one of the biggest insider trading schemes.

For years, Galleon prided itself on hiring only the best in the technology and healthcare industry -- top-notch analysts and portfolio managers boasting Ivy League degrees and stints at Goldman Sachs Group Inc and Needham & Company.

On paper, many looked similar to Galleon's founder Raj Rajaratnam. Now, they couldn't look more different.

As the 52-year-old, billionaire hedge fund manager hunkers down to keep his fund, which managed $3.4 billion at the end of September, from sinking, they are scrambling to leave the embattled firm.

We have been flooded with calls from very nervous individuals at the firm who are trying to secure alternative employment, said one recruiter, who asked to remain anonymous due to the sensitivity of the matter.

At Galleon's New York headquarters, Rajaratnam came to work on Tuesday trying to project an air of normalcy, one day after telling investors and employees that he is innocent and vowed to fight the charges, said a woman, who works at the fund.

Recruiters around the United States who have spoken with Galleon employees, reported a nervous staff with some worrying whether their stint at the hedge fund would now frighten potential employers.

People are afraid of being stigmatized by being associated with Raj, said another recruiter, who specializes in placing people at hedge funds and also did not want to be named.

At the same time investors ranging from college endowments like Colgate University to state pension funds like the Virginia Retirement System are debating whether to pull out or keep their money with Galleon.

Colgate, which has invested with Galleon since 2005, is actively monitoring the situation, said university spokesman Anthony Adornato.

While Galleon, which managed $7 billion at its peak last year, said client money will not be returned before early next year, some lawyers are investigating other possible options.

Documents or no documents, this situation sounds to be entirely fraudulent and I would be very surprised if lawyers did not pursue very aggressive tacks to get their clients money out, said Marc Gottridge, a partner at Lovells LLP, a UK-headquartered law firm.

Even Galleon appears to be preparing for redemption notices as traders at the firm have begun unwinding positions in order to raise cash, two people familiar with the situation said.

At the same time, New Castle Partners LLC, another hedge fund swept up in the scandal, said co-founder Mark Kurland has taken a leave of absence and that Danielle Chiesi, a consultant, is no longer associated with the firm.

Kurland and Chiesi were among six people, including Galleon's Rajaratnam, accused of reaping more than $20 million by trading on inside information in a dozen companies.

(additional reporting by Joseph Giannone and Grant McCool in New York; editing by Leslie Gevirtz)

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