Galleon hedge fund founder Raj Rajaratnam will plead not guilty to any new government charges of insider trading, his lawyer told a judge on Tuesday, as prosecutors raised the amount of his alleged illegal profits to $41 million.

If there is a superseding indictment we will plead not guilty, Rajaratnam's lawyer John Dowd told the judge in Manhattan federal court. As far as we are concerned, these are false accusations and we will deal with it like the other accusations.

U.S. District Court Judge Richard Holwell ruled at the hearing that Sri Lankan-born U.S. citizen Rajaratnam would be allowed to remain free on $100 million bail, rejecting a prosecutor's request to detain him.

Prosecutors said last week that they were preparing additional charges against Rajaratnam in what they have called the biggest hedge fund insider trading case ever in the United States.

Dowd said his client was prepared to go to trial.

We intend to plead not guilty and to demonstrate that he is innocent, he said.

Rajaratnam, 52, 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. Seven people, including a former director of McKinsey & Co management consultants have pleaded guilty to charges of fraud and conspiracy.

Last week, former McKinsey & Co director Anil Kumar pleaded guilty, saying Rajaratnam paid him $1.75 million for inside information over several years.

On Tuesday, Dowd said he would prove that what Kumar said was a total fabrication.

U.S. prosecutor Josh Klein told the court that Rajaratnam's alleged illegal profits may have been as much as $41 million or more, at least $5 million more than previously alleged.

The cases are USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184 and USA v Zvi Goffer et al in the same court, 09-mj-02438

(Reporting by Grant McCool; Editing by Toni Reinhold)

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