Ex-Galleon Manager Smith Questioned by Rajaratnam Attorney Over ATI Trades

A lawyer for Galleon Group LLC co- founder Raj Rajaratnam sparred with Adam Smith, a former portfolio manager for the hedge-fund, over why the firm bought stock in ATI Technologies before a 2006 takeover.

During cross-examination yesterday in the insider-trading trial in Manhattan federal court, the defense attorney, Terence Lynam, sought to show jurors that Galleon and Rajaratnam bought shares in ATI and other companies for lawful reasons and not because Smith, 39, had come into inside information, as he testified this week as a prosecution witness. Lynam said, for instance, that Rajaratnam didn’t buy stock at the same time Smith did.

“He’s not buying when you’re buying?” Lynam asked Smith about purchases of Intersil Corp. (ISIL) Smith had testified that he got leaks from an Intersil insider and passed them to his boss.

Lynam also asked questions suggesting his client didn’t grasp that Smith was referring to a source of inside information during a phone call between the two that the government secretly taped.

“You have no idea that when you got on the phone and mentioned Kamal, that he knew who that was?” Lynam asked Smith. Jurors previously heard a recording of Smith telling Rajaratnam that “Kamal” -- who he said was Kamal Ahmed, a Morgan Stanley investment banker -- said Vishay Intertechnology Inc. (VSH) may be selling itself.

Ahmed, who has not been charged, denies wrongdoing.

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 by corporate insiders. Rajaratnam denies wrongdoing, saying he based trades on research and published sources.

Fundamentals

Lynam asked Smith, who is testifying for the government after pleading guilty, about research reports he wrote justifying the purchase and sale of stocks based on companies’ fundamentals.

He asked Smith whether he had been “consistently positive” on ATI stock in early 2006, just months before the chipmaker was acquired by Advanced Micro Devices Inc. (AMD) Prosecutors say Smith and Rajaratnam had inside information about the deal.

“Mr. Smith, don’t these documents give you ample reason to buy ATYT stock?” Lynam asked, using the company’s stock ticker.

Smith said he had been bullish on ATI. That “also doesn’t mean that I didn’t have inside information,” he said.

Private Placement

Lynam asked Smith about a Sept. 24, 2008, conversation in which Rajaratnam is heard telling his personal trader that he had received a call “at 3:58” a day earlier alerting him that “something good may happen to Goldman,” a reference to Goldman Sachs Group Inc. (GS) Prosecutors say Rajaratnam bought shares after being tipped that Berkshire Hathaway Inc. (BRK/A) would invest $5 billion in the bank.

Lynam focused on a different part of the conversation, where Rajaratnam discussed whether Galleon would acquire new shares that Goldman Sachs was issuing in a private placement. The lawyer said that there was nothing illegal about such a purchase.

On re-direct examination, Assistant U.S. Attorney Andrew Michaelson had Smith review for jurors the millions of dollars worth of stock that Rajaratnam bought in companies after he allegedly got tipped.

After Smith sent an e-mail that said “game on” -- he testified that it was a reference to an acquisition of Integrated Circuit Systems Inc. by Integrated Device Technology Inc. (IDTI) in 2005 -- Rajaratnam had a fund that he controlled purchase 150,000 shares of Integrated Circuit, Smith testified, reviewing Galleon trading records.

The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Glovin in Manhattan federal court at glovin@bloomberg.net; Patricia Hurtado in Manhattan federal court at phurtado@bloomberg.net; Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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