A lawsuit accusing Galleon hedge fund founder Rajkumara Rajaratnam for using a charitable foundation to funnel millions of dollars to the LTTE can go forward, a federal judge in New Jersey said.

The suit, filed under the Alien Tort Claims Act, concerns the Tamil Rehabilitation Organization (TRO), a non-profit that the U.S. Treasury Department shut down in 2007 for allegedly bankrolling the Liberation Tigers of Tamil Elam, which the U.S. classified as a foreign terrorist organization in 1997 and as a specially designated global terrorist in 2001. TRO’s assets were frozen and Americans were barred from dealing with it, the New Jersey Law Journal said.

The suit, Krishanthi v. Rajaratnam, 09-cv-5395, was filed by more than two dozen Sri Lankan citizens who claim they lost family members or were injured in five bombings carried out by the LTTE in Sri Lanka in late 2007 and early 2008.

They alleged that Rajakumara Rajaratnam, of New York City, and his father, Jesuthasan Rajaratnam, of Old Tappan, N.J., both U.S. citizens, gave millions of dollars directly to TRO and also via a tax-exempt charity, the Rajaratnam Family Foundation, incorporated in Maryland in 2001. Their money and money donated by others allegedly wound up in the hands of TRO-Sri Lanka, a sister organization that provided financial support to the Tigers.

In addition, after the tsunami of Dec. 26, 2004, Rajakumara Rajaratnam started another charity, Tsunami Relief Inc., which gave $2 million to TRO-Sri Lanka, the complaint says.

The plaintiffs describe the Rajaratnams as “members of the global Tamil expatriate community who knowingly and purposefully helped fund [the Tigers’] terror campaign and spread [Tigers] propaganda.” As late as 2007, the U.S. Department of State identified TRO in the U.S. as one of the biggest sources of overseas donations to the Tigers and the Rajaratnam Family as the largest private donor from the United States, says the Complaint.

U.S. District Judge Dennis Cavanaugh threw out most of the counts in the complaint, including negligence, reckless disregard and wrongful death and survivor claims. But he let stand counts of aiding and abetting, intentionally facilitating and/or recklessly disregarding crimes against humanity in violation of international law and intentional infliction of emotional distress.

On the aiding and abetting claim, he held that private individuals and entities too can be sued under the Alien Tort Claims Act, a 1789 law that allows non-U.S. citizens to sue in U.S. courts for violations of “the law of nations,” no matter where they occur.

The 3rd U.S. Circuit Court of Appeals has not ruled on the question but Cavanaugh followed precedent from other circuits, including a 2nd Circuit case that allowed a suit against Radovan Karadzic, the Bosnian Serb leader whose war crimes trial is underway at the International Criminal Court in The Hague.

The 3rd Circuit precedent was also lacking on whether the Alien Tort statute encompasses aiding and abetting liability and crimes against humanity so Cavanaugh once again looked to cases elsewhere and found it does.

He adopted the 9th Circuit’s standard for establishing claims for aiding and abetting crimes against humanity. It requires showing that the defendant provided practical assistance to the principal who actually committed the war crimes; that the assistance had a substantial effect on the perpetration of the crime; and that the assistance was meant to facilitate the commission of that crime.

Cavanaugh rejected defendants’ argument that diversity jurisdiction did not exist and postponed ruling on whether he has personal jurisdiction over TRO to allow discovery on the issue.

He also put off deciding defendants’ contentions that the case belonged in Sri Lanka under the doctrine of forum non convenience and that the plaintiffs failed to exhaust Sri Lankan remedies.