Galleon Group LLC co-founder Raj Rajaratnam had a ready answer for every question U.S. regulators put to him about possible insider trading three years ago.
“AMD on August 1st, now 13th,” Rajaratnam wrote in an Aug. 2, 2006, instant message sent to an RBC Capital Markets analyst. The analyst responded: “Hey, for the tickets have to choose package B?”
“What’s going on?” Securities and Exchange Commission lawyer Andrew Michaelson asked Rajaratnam during a formal agency deposition on June 7, 2007. He wanted to know about the link between “package B” and the ticker symbol for computer component-maker Advanced Micro Devices Inc.
“We were going to see cricket in Trinidad,” he told Michaelson. “We were talking about the cricket packages.” Rajaratnam said he didn’t recall the significance of Aug. 13.
Rajaratnam was indicted in December as part of the largest- ever hedge fund insider trading prosecution. The previously undisclosed deposition, taken at the SEC’s New York office as part of an agency investigation, was filed May 7 in Manhattan federal court by defense lawyers in the criminal case.
Rajaratnam, who has pleaded not guilty, is scheduled for trial in October for conspiracy and securities fraud. He faces more than 10 years in prison if convicted. Government lawyers, including Michaelson, who joined the prosecution team, claim that Rajaratnam used inside tips to trade in AMD shares in 2008.
Testifies at Trial
Prosecutors may use the deposition to question Rajaratnam, 52, if he testifies at trial, said Jacob Frenkel, a former federal prosecutor who is now a partner at Shulman Rogers Gandal Pordy & Eckerin in Potomac, Maryland.
“His prior testimony before the SEC could be used for impeachment -- to show inconsistencies” in his account, said Frenkel, who isn’t involved in the Galleon investigation.
The deposition was filed as part of a defense effort to suppress secret government wiretaps of Rajaratnam, evidence central to the prosecution’s case. His attorneys claim Justice Department lawyers misled the judge who approved the wiretap.
At trial, Rajaratnam’s defense team may be able to point to the daylong deposition as evidence that he was “extremely forthcoming” with the investigators probing Galleon, said lawyer Roger Zuckerman of Zuckerman Spaeder LLP in Washington.
At the same time, Zuckerman said there are “strong indications” that prosecutors may have misled the judge by not disclosing this and other events related to the SEC’s probe in their 2008 request for a wiretap of Rajaratnam’s cell phone.
“The guy was forthcoming in the extreme,” Zuckerman said in an interview of Rajaratnam’s deposition. “Ironically, in their wiretap application, the government likely was not.”
Jim McCarthy, a spokesman for Rajaratnam, declined to comment.
The deposition stemmed from an SEC investigation into suspected insider trading at Sedna Capital Management, a hedge fund run by Rajaratnam’s brother, Rengan. During the agency questioning, much of which focuses on Galleon’s trading, Raj Rajaratnam denied using confidential tips.
“Has Galleon ever made a trade on the basis of non-public information?” Michaelson asked him. “Not to my knowledge,” Rajaratnam responded.
Once, when the “investor relations person” at Cognos Inc. told a Galleon analyst of a possible bid at “a certain price,” Rajaratnam said he put the software firm’s stock on Galleon’s restricted list so shares wouldn’t be traded by his hedge fund.
“I thought that was material and non-public,” Rajaratnam told SEC lawyers.
Cognos is now part of Armonk, New York-based International Business Machines Corp., which acquired the Ottawa-based company for $4.5 billion in 2008. IBM spokesman Edward Barbini declined to comment. Rengan Rajaratnam didn’t return a call for comment.
Galleon’s purchase of AMD shares in 2006 was raised throughout the deposition. Rajaratnam said he’d traded in the Sunnyvale, California-based company for 20 years, knew its “patterns” and the industry, and had Galleon analysts covering it. In response to Michaelson’s questions, the hedge fund manager said he attended a meeting with AMD executives including then-Chief Executive Officer Hector Ruiz in the summer of 2006.
Asked about Galleon’s purchases of more than 2 million AMD shares between July 20 and Aug. 11, 2006, Rajaratnam attributed them to savvy investing. On July 24, AMD, the second-largest maker of personal-computer processors, agreed to pay $5.4 billion for Canadian microchip-maker ATI Technologies Inc. On Aug. 17, computer maker Dell Inc. said it would expand its use of AMD chips. AMD shares rose 32.5 percent between July 21 and Aug. 17.
“AMD is a fairly simple company to model,” Rajaratnam told Michaelson. Galleon, he said, bought AMD shares for several reasons: because its stock was cheap, it was launching a new product and it had a technological edge on rivals.
“It’s not a multiproduct company,” he explained. “So you’re able to model it much more precisely than if you had a company with 20 different products.”
Of the messages in 2006 with the RBC analyst, who Rajaratnam mistakenly said was at Canadian Imperial Bank of Commerce, he said he was simply discussing cricket.
“We had to choose whether you wanted to follow India or Sri Lanka and we were having that discussion,” said Rajaratnam, a Sri Lanka native. India’s itinerary for the World Cup was package B.” Cricket’s World Cup was held in 2007 and occurs every four years.
‘Through the 13th’
Rajaratnam also explained an Aug. 1, 2006, instant message exchange with his brother Rengan, who asked, “Are you going to hold the AMD?” Rajaratnam answered: “Y through the 13th,” Michaelson said. “Cool, we’ll do the same,” Rengan said.
Rajaratnam said that he didn’t recall the significance of the date.
Another subject of the deposition was Roomy Khan, a former Intel Corp. executive who pleaded guilty in Manhattan federal court to insider trading and began cooperating with prosecutors in 2008 in the criminal case against Rajaratnam.
Michaelson asked whether Khan gave Rajaratnam information about AMD. He said he didn’t recall. Khan has pleaded guilty to insider trading charges as part of the Galleon investigation.
Rajaratnam was indicted for earning millions of dollars by allegedly using inside information concerning AMD’s 2008 plan to spin off two of its plants, as well as its 2006 acquisition of Markham, Ontario-based ATI. The spinoff was to occur after AMD got $8.4 billion from the emirate of Abu Dhabi. McKinsey & Co. director Anil Kumar, who has pleaded guilty in the Galleon case, allegedly tipped Rajaratnam to talks about the spinoff and the ATI deal.
Rajaratnam’s co-defendant is Danielle Chiesi, a former consultant at New Castle Funds LLC. According to court papers, an unidentified AMD executive provided her with leaks. The tipper was AMD chief executive Ruiz, according to a person familiar with the probe. Ruiz stepped down as CEO in 2008.
Janice Oh, a spokeswoman for U.S. Attorney Preet Bharara in New York, declined to comment.
Rajaratnam’s defense lawyers submitted the 2007 deposition to U.S. District Judge Richard Holwell in an effort to show that prosecutors lied in their wiretap application the next year, when they claimed they’d been investigating Rajaratnam for only a brief period.
The deposition and other documents filed with the court show the government had been probing him since 2000, the lawyers said.
Four Months Later
Four months after the deposition, agents with the Federal Bureau of Investigation began questioning Khan about transactions with Rajaratnam, according to court documents. In March 2008, prosecutors requested permission to wiretap Rajaratnam’s phone.
In the court filing last week, defense attorney John Dowd said the government’s scrutiny of Rajaratnam “appeared” to wind down soon after the deposition.
“Instead, it merely marked the point at which the government shifted from the conventional investigative techniques it had been using for the last nine years in favor of a wiretap,” the lawyer wrote.
The case is U.S. v. Rajaratnam, 09-cr-01184, U.S. District Court, Southern District of New York Manhattan).
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