Raj Rajaratnam’s brother Rengan went to the Galleon Group LLC office after his sibling’s Oct. 16, 2009, arrest and removed notebooks, former Galleon trader Adam Smith told prosecutors, according to a court filing.
Raj Rajaratnam’s lawyers, in a March 27 court filing, asked a judge to bar Smith from testifying about Rengan Rajaratnam’s actions on that day. Prosecutors want to offer the account from Smith, who will testify for the government today, “to prove the existence” of a conspiracy and “Rengan’s membership in it,” they wrote.
U.S. District Judge Richard Holwell said yesterday that he was “leaning” toward barring the testimony and will decide before Smith takes the witness stand.
In other court papers filed March 27 in Manhattan federal court, where Galleon Group co-founder Raj Rajaratnam is on trial for insider trading, prosecutors said they want Smith to testify about comments Rengan allegedly made to him months after Raj’s arrest. Holwell said he is weighing the request.
“Rengan told Smith that, when someone discussed ‘Kamal’ with Raj, Raj would say it was a reference to Kamal Das, a sell- side analyst (and not Kamal Ahmed, a Morgan Stanley investment banker whom the government intends to prove provided inside information to Smith, which Smith in turn provided to Raj),” Assistant U.S. Attorneys Jonathan Streeter and Reed Brodsky wrote in their filing.
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. Rajaratnam denies wrongdoing, saying he based trades on research.
Neither Rengan Rajaratnam nor Kamal Ahmed has been charged with wrongdoing. David Tobin, an attorney for Rengan Rajaratnam, didn’t return a call seeking comment yesterday. Douglas Tween, Ahmed’s lawyer, said in an interview that his client did “nothing illegal or improper” and is cooperating “with Morgan Stanley and has answered every question they’ve put to him.”
Separately, the March 27 court filing also includes a summary of an interview that the Federal Bureau of Investigation did with Smith on Feb. 1. Smith was present for a meeting at Galleon days after Rajaratnam’s arrest.
“Raj was non-specific and very emotional, according to the individual,” the report said. “Raj told the employees that he was a fighter, that he was going to fight.” In another report from Jan. 25, an individual who isn’t identified told agents that Rajaratnam complained about his treatment by the FBI when he was arrested, saying agents “would not let him use the bathroom.”
Raj Rajaratnam’s lawyers say Smith’s testimony about the notebooks should be excluded because their client, while under arrest, had no control over his brother’s actions. Also, the defense says that documents were removed from Rajaratnam’s office at the instruction of a defense lawyer.
“It would be impermissibly prejudicial, and of no probative value whatsoever, for the government to elicit testimony suggesting that Mr. Rajaratnam and his brother were concealing evidence,” defense attorney John Dowd wrote.
Smith, who pleaded guilty Jan. 26 and is cooperating with prosecutors, may also discuss a conversation between Rajaratnam and former Galleon trader David Lau on Oct. 24, 2008, according to a court filing.
In it, Rajaratnam “referred to Goldman Sachs’ financial performance for the fourth quarter of 2008, and stated: ‘I can get that number,’” according to the filing.
‘Get the Number’
The U.S. says the testimony will show that Rajaratnam thought he could “get the number” on Goldman Sachs “before it was officially announced on Dec. 17, 2008, and presumably, that he could get it from an insider rather than through legitimate means.”
Holwell yesterday ruled that Smith may not “interpret” the conversation for jurors, even as he recounts the details of it.
FBI notes of a Feb. 1 interview with Smith included additional and as-yet undisclosed details of the case.
According to the notes, an “agitated and nervous” Rajaratnam asked Smith in early 2010 whether he had relationships with “any U.S. based consultants that worked for companies” -- which may have been a reference to expert-network consultants that hedge funds sometimes employ.
Smith “replied no,” the FBI report said.
In the interview with the FBI, Smith told the agents that he got information on Asian technology companies from Joseph Liu, a Galleon analyst in Asia, who, Smith said, claimed to take a “thrill in having inside info edge.”
Smith met with Rengan Rajaratnam twice in spring 2010, the court documents say. In one meeting, at a midtown Manhattan Starbucks, Rengan asked about Smith’s “little black book of information” and wanted “to confirm” that he “was not going to say anything about the notebooks or black book.”
The typed FBI documents say the interview was with an “individual” whom the government didn’t name. Other handwritten documents identify the person as Smith.
This morning, the defense concluded its cross-examination of Rajiv Goel, who had worked in Intel Corp. (INTC)’s treasury group and was a close friend of Rajaratnam’s. Goel pleaded guilty on Feb. 8, 2010, and is cooperating with prosecutors.
Terence Lynam, a lawyer for Rajaratnam, challenged Goel’s testimony that he gave Rajaratnam inside information about Intel earnings and about a multibillion-dollar joint venture between Clearwire Corp. and Sprint Nextel Corp. in 2008.
Lynam showed Goel news articles and company releases from the months leading up to the May 7, 2008, announcement of the deal. The defense lawyer was trying to demonstrate that whatever information Goel may have passed to Rajaratnam was already public or wasn’t important to Rajaratnam’s trading decisions.
Lynam showed Goel part of a wiretap transcript in which Goel and Rajaratnam, who were friends at the time, discussed how to place a value on the Clearwire-Sprint joint venture.
“You wanted to show your old business school classmate that you were smarter than him, didn’t you?” Lynam asked.
“He’s a lot smarter than me,” replied Goel. “Even today.”
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