A wiretapped telephone call between Galleon Group LLC’s Raj Rajaratnam and his brother Rengan was used by prosecutors to bolster their case against the hedge fund co-founder in the insider-trading trial.
Yesterday, Rajiv Goel, who had worked in Intel Corp. (INTC)’s treasury group, returned to the witness stand to testify that he leaked secret information to his friend Raj Rajaratnam. His testimony centered on his alleged 2008 tip that Intel would invest $1 billion in a new wireless network company formed by Clearwire Corp. (CLWR) and Sprint Nextel Corp. Prosecutors played several recordings of Goel telling Rajaratnam about the deal.
To counter possible claims by defense lawyers that the news Goel leaked was already public, prosecutors also played a tape from March 25, 2008, of a conversation between Raj and Rengan Rajaratnam. The Raj-Rengan discussion took place six days after Goel was recorded telling Rajaratnam about the venture and Intel’s investment -- and just moments after the Wall Street Journal posted an online story about the Sprint-Clearwire deal.
“It’s all over the Wall Street Journal,” Rengan Rajaratnam told his brother at 8:22 p.m., according to the wiretapped recording played for jurors in Manhattan federal court. “They’re short on details, but they kind of say, you know, they’re looking to raise as much as $3 billion.”
The brief telephone call is intended to show that Goel’s tips to Raj Rajaratnam, beginning on March 19, did in fact contain confidential information and included news that hadn’t appeared in the press. Prosecutors have said that Rengan Rajaratnam, founder of hedge fund Sedna Capital Management, conspired with his brother to trade on inside information. Rengan hasn’t been criminally charged.
Raj Rajaratnam, 53, is the central figure 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 such as Goel. Rajaratnam denies wrongdoing, saying he based trades on research.
Goel, who pleaded guilty on Feb. 8, 2010, to conspiracy and securities fraud charges and is cooperating with the U.S., recounted a call from Rajaratnam in 2009 after Intel acquired Wind River Systems Inc. Rajaratnam complained that Goel hadn’t told him about the deal, Goel said.
“He said, ‘How come you didn’t tell me?’” Goel testified. He adding that Rajaratnam also said, “Fortunes are made and lost on this” type of information.
Also that year, Rajaratnam yelled at Goel when Goel couldn’t uncover Intel financial data, he testified. “What kind of executive are you?” Rajaratnam shouted, according to Goel.
Part of yesterday’s court session was devoted to reviewing Goel’s taped conversations with Raj Rajaratnam about the venture Sprint formed with Clearwire. The transaction was publicly announced on May 7, 2008.
“What are you going to do?” Goel is heard asking Rajaratnam on a tape from March 20, 2008, after Goel outlined the contours of the Sprint-Clearwire deal and Intel’s investment.
Other wiretaps showed how close the two had been. They include Goel asking Rajaratnam about their planned vacation in Italy together, Goel asking for help getting a job “with one of your powerful friends,” and Rajaratnam asking about hotel accommodations during a reunion for the Wharton School at the University of Pennsylvania, from which they graduated in 1983.
At one point, Goel told Rajaratnam that he received an Intel Achievement Award from his employer for his work on a particular transaction. Rajaratnam replied that Goel would get only a “psychic reward” from Intel, not a financial one.
Goel testified that Rajaratnam made $123,000 in profit for him in 2008 from trading in the stock of PeopleSupport Inc. A unit of Essar Group, an Indian company, offered to buy PeopleSupport that year.
Goel told jurors that Rajaratnam bought 15,000 shares of PeopleSupport in Goel’s Charles Schwab account on July 2, 2008, and another 15,000 shares on July 28.
When the companies announced the deal on Aug. 4, 2008, PeopleSupport stock jumped 25 percent. Goel sold his 30,000 shares one week later at a profit of $103,000, he testified.
Later, when Essar announced in October 2008 that it would need additional time to close the acquisition, PeopleSupport shares dropped sharply. Goel said Rajaratnam again bought 30,000 shares for his account, telling him he was “100 percent sure” the deal would close.
“We know because one of our guys is on the board,” Rajaratnam said on a wiretap played for jurors earlier in the trial.
Goel sold the stock two days later, after the parties announced a new closing date, for a $20,000 profit, he said.
On cross-examination, Goel testified that he and Rajaratnam stayed in touch after graduating together from the Wharton School. Their friendship developed in 2001, a year after Goel started working at Intel, he said.
Terence Lynam, a lawyer for Rajaratnam, asked Goel repeatedly if he was testifying against his former friend to get a more lenient sentence.
“I’m asking whether you understand that that’s your best chance of getting a lower sentence,” Lynam said.
“Best chance, yes,” Goel said.
Lynam suggested to Goel that Rajaratnam traded in Goel’s account not as payment for tips but because he was a generous friend. The lawyer also noted that Rajaratnam often kidded with Goel and that the two men carried on “a game where you would talk about how Intel was going to do.”
In testimony earlier this week, Goel said that Rajaratnam told him in 2003 that Rajaratnam had given BMW cars to two women in Intel’s sales department who leaked information to him. Lynam asked Goel if he thought Rajaratnam was joking.
“I don’t think that was a joke, sir,” he responded.
Wasn’t Rajaratnam kidding when he told Goel in a wiretapped conversation that he would kiss Goel on the cheek the next time he saw him? Lynam later asked.
“I hope he was,” said Goel, to laughter in the courtroom. “If not, I had him figured out all wrong.”
Prosecutors said yesterday they will present another two weeks’ of testimony in the trial.
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
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