U.S. Asks Judge to Block Rajaratnam From Offering Statements
Raj Rajaratnam, the Galleon Group LLC co-founder on trial for alleged insider trading, shouldn’t be permitted to introduce statements including conversations recorded by his personal trader, prosecutors told a judge.
The government’s request, made in a letter to U.S. District Judge Richard Holwell today, shows that U.S. investigators were using cooperating witnesses to secretly record telephone calls in the investigation as recently as January, 15 months after Rajaratnam’s arrest.
“The relevant recordings were made at the direction of the FBI by Adam Smith on January 14, 2011, just after Smith had begun cooperating with the government,” prosecutors said, referring to discussions between Smith, a former Galleon trader, and Ian Horowitz, who was Rajaratnam’s personal trader at the firm, according to testimony in the trial.
Rajaratnam, 53, is on trial in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of making $45 million from tips leaked by corporate insiders and hedge fund traders.
According to the letter and transcripts of the calls, Smith had three conversations with Horowitz on Jan. 14. FBI agents directed Smith “to record conversations with certain individuals, including Horowitz, the government said.
In the Horowitz calls, Smith, at the direction of the agents, raised the issue of trading in Starent Networks Corp., a mobile data network company acquired by Cisco Systems Inc. (CSCO) in 2009 and tried, unsuccessfully, to get Horowitz to discuss the identity of the tipper.
In the calls, Horowitz denied knowing the tipper and said he didn’t know of any concerns that Galleon was using illegal information in its Starent trading.
‘‘The fact that the government’s effort to develop evidence against Horowitz -- in the form of an undercover recording -- did not work is entirely inadmissible,” prosecutors said. “Indeed, it is not at all surprising that the effort failed in light of Horowitz’s knowledge of the highly public investigation.”
Horowitz declined to comment on the government’s investigation of him. His attorney, Martine Beamon, didn’t immediately return a voice mail message.
In addition to the Horowitz calls, prosecutors are seeking to bar denials by Joe Liu, a Taiwan man who is alleged to have conspired with Rajaratnam to obtain inside information in 2009 about the earnings of Synaptics Inc. (SYNA) before they were issued.
Liu denied wrongdoing in a phone interview with FBI agents, prosecutors said.
Before pleading guilty in January to securities fraud and conspiracy, Smith, a former Galleon portfolio manager, told U.S. investigators that Horowitz him in 2009 that he was going to put 330,000 shares of Starent into Smith’s fund Galleon and that Smith shouldn’t ask why. Horowitz also put shares of Starent into other Galleon accounts, prosecutors said.
In one of the transcripts of the calls between Horowitz and Smith, Horowitz expresses a suspicion that he’s being recorded.
“Like, I feel that you’re ... the questions you are asking me are like you are tapping me on the phone trying to get me to say some things,” Howoritz said to Smith, according to the transcript.
“Are you serious?” Smith asked. “Dude, come on.”
“Yeah,” Horowitz said.
“You kidding me?” Smith asked.
“That’s why I ask, like I don’t get it,” Horowitz said.
“Well, I, I’m telling you 100 percent that’s not the case,” Smith told his former Galleon colleague.
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