Could accused inside trader return to Blackstone?

April 18, 2011, 10:01 PM UTC

It’s been more than two years since Ramesh Chakrapani left The Blackstone Group (BX), after being accused of insider trading by the SEC. Now he’s trying to get his job back.

Fortune has learned that Chakrapani has held discussions with Blackstone executives about a return engagement, although it’s unclear if the two sides can reach an agreement. At the very least, it’s a long way from where things stood in January 2009, when Blackstone boss Steve Schwarzman wrote in a memo: “I am personally infuriated that one person’s behavior could damage our unblemished record built up over nearly a quarter century.”

Chakrapani had been a rising star in Blackstone’s mergers and acquisitions advisory business, achieving the title of managing director by age 33. All of that came crashing down in January 2008, when the London-based executive was arrested upon arrival at New York’s JFK airport. He would spend three nights in a Manhattan jail cell, before being formally charged with illegally telling a friend — former SAC Capital analust Jonathan Hollander — that supermarket chain Albertsons was about to be acquired for more than $17 billion by private equity firm Cerberus Capital Management. Albertsons was a Blackstone client.

What has happened since then has been strange, even by the standards of federal prosecution. The SEC dropped its criminal complaint against Chakrapani three months later without explanation. Then, in June 2009, it asked for the civil charges to be dropped, because a key cooperating witness would be unavailable to testify for several months because he also was a witness in another insider trading case. One caveat, however, was that the SEC asked the presiding judge to dismiss the charges without prejudice, so that they could possibly be refiled at a later date.

Chakrapani opposed the move, arguing that it would destroy his financial career prospects. Basically: Give me a trial or let me get on with my life.

It wasn’t a compelling enough argument. The judge granted the SEC’s motion last June, saying that Chakrapani had failed “to meet his burden of demonstrating that substantial prejudice would ensue from a dismissal without prejudice.” And, if Chakrapani does manage to get rehired at Blackstone, perhaps the judge was right after all…

A Blackstone Group spokesman declined to comment for this story.