Chiesi Told Rajaratnam She ‘Played’ Friend Like ‘Piano’
Prosecutors at the insider-trading trial of Raj Rajaratnam played tapes of Danielle S. Chiesi, a former analyst at New Castle Funds LLC, telling how she obtained information. Photographer: Louis Lanzano/Bloomberg
April 5 (Bloomberg) -- Seth Berenzweig, managing partner at Berenzweig Leonard, talks about the insider-trading trial of Galleon Group LLC co-founder Raj Rajaratnam. Yesterday, jurors in the trial heard wiretapped recordings of Danielle Chiesi, a former analyst at New Castle Funds LLC, passing to Rajaratnam what prosecutors said was an illegal tip that Akamai Technologies Inc. would lower its forecast. Berenzweig speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
April 4 (Bloomberg) -- Douglas Burns, a former federal prosecutor, talks about the insider-trading trial of Galleon Group co-founder Raj Rajaratnam. Prosecutors are asking the judge in the case to block proposed testimony from Gregg Jarrell, a former chief economist to the U.S. Securities and Exchange Commission who may testify that he found nothing improper with stock trades by Rajanatnam. Burns speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Danielle Chiesi told Raj Rajaratnam, the Galleon Group LLC co-founder on trial for insider trading, that she “played” a friend “like a finely tuned piano” after getting a tip Akamai Technologies Inc. (AKAM) would lower its forecast.
Prosecutors today played recordings of Chiesi, a former analyst at New Castle Funds LLC, speaking with Rajaratnam in July and August of 2008, immediately before and after Akamai changed the earnings estimates it provided investors.
“They’re gonna guide down,” Chiesi told Rajaratnam, according to a wiretap of their conversation on July 24, 2008, six days before Akamai made its public announcement. “I just got a call from my guy. I was talking about the family and everything and then he said, people think it’s gonna go to 25.”
“Honey, you know what, it’s just for us,” Chiesi continued, according to the tape. “We go slow, keep shorting every day.”
“I played him like a finely tuned piano,” she added.
Prosecutors say Chiesi, 45, got tipped by Kieran Taylor, then an Akamai executive. Taylor hasn’t been charged with wrongdoing. Chiesi has pleaded guilty to insider trading. In a short sale, an investor sells borrowed shares, hoping to replace them later with cheaper shares while profiting from the difference.
‘Classy Way’
Akamai announced its lower forecast on July 30, 2008. At 5:30 p.m. that day, Rajaratnam called Chiesi to say “thank you,” according to another tape played today in which Rajaratnam says he sold at least 150,000 Akamai shares short. The stock, which closed at $31.25 on July 30, opened then next day at $23.34.
“You did it in such a classy way,” Rajaratnam said in the taped call. “The way you worked the relationship.”
“It’s a conquest,” an excited Chiesi responded, according to the tape. “It’s a conquest. It’s mentally fabulous for me.”
Chiesi, who lives in New York, then said she was on her way to a meeting at the Chinese consulate.
“I want to own China,” Chiesi told Rajaratnam.
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.
Prosecutors said today they expect to rest their case on April 6.
Insider Trading
The Chiesi-Rajaratnam recordings are the latest to show what prosecutors say is insider trading as it actually takes place. Earlier recordings caught Rajaratnam talking to friends Anil Kumar and Rajiv Goel and Galleon trader Adam Smith.
The Chiesi recordings are the raciest so far. In them, Chiesi refers to her relationship with Robert Moffat, a former International Business Machines Corp. senior vice president who was sentenced to six months in prison for leaking information to her. In his guilty plea last year, Moffat admitted having an “intimate relationship” with Chiesi and claimed she “played him” to get tips.
Chiesi also alludes to an intimate relationship with Hector Ruiz, who was chief executive officer of Advanced Micro Devices Inc. (AMD) An earlier witness testified that Chiesi had such a relationship, which Ruiz has denied through a spokesman.
‘Defer to You’
“I must defer to you on IBM,” Rajaratnam told Chiesi in another taped call.
“And AMD,” Chiesi responded as they discussed an AMD spinoff that would soon be announced. Prosecutors say the tip on the AMD spinoff was also inside information.
AMD came up repeatedly in the Chiesi tapes. On Aug. 27, 2008, she called Rajaratnam and asked his “help” on whether to buy AMD shares, with a note of concern in her voice.
“There are people who hate me,” she said on the recording. “I am a chick in this business.”
Chiesi asked whether she should be “showing a pattern of trading AMD.”
“You should buy and sell, and buy and sell,” Rajaratnam said, according to the recording.
Along with the Chiesi-Rajaratnam tapes, prosecutors played taped conversations of Chiesi talking to Taylor, including one where she tells to have “integrity.” The wiretaps were played during the testimony of J. Donald Sherman, chief financial officer of Cambridge, Massachusetts-based Akamai.
Three Times
On Sherman’s cross-examination, defense attorney John Dowd sought to show that Akamai stock had fallen by nearly 18 percent before Rajaratnam got the alleged tip. That may establish that the leak wasn’t material or criminal.
“Do you think that an investor would view that as a ‘guide down’?” Dowd asked.
Assistant U.S. Attorney Jonathan Streeter on redirect examination countered the attack by asking Sherman if he knew that Rajaratnam increased his short position in Akamai from 300,000 to 875,000 shares after getting the tip.
“How much of a percentage increase is that?” he asked.
“Almost three times,” Sherman said.
Also today, prosecutors said they wouldn’t call to the witness stand Roomy Khan, the ex-Intel Corp. (INTC) executive and stock trader who was among the first to plead guilty and cooperate with prosecutors against Rajaratnam. Khan has twice been convicted of insider trading and admitted lying to prosecutors.
Camera Footage
Instead, prosecutors want jurors to see Intel surveillance camera footage of Khan faxing confidential information to Rajaratnam. Two videotapes from late 1997 and early 1998 show Khan faxing Intel “book-to-billing” reports to Rajaratnam’s Galleon fax machine, according to a court filing. U.S. District Judge Richard Holwell will decide whether to admit the footage.
Another alleged co-conspirator was made public today. In a Jan. 26 letter to Rajaratnam’s lawyers entered into records, prosecutors identified Nathaniel Cohn as an alleged accomplice. A Dec. 31, 2006, Galleon phone directory entered in evidence lists an ex-Galleon employee by that name. Cohn isn’t charged.
In the same letter, prosecutors identified a Tom Lin as a cooperating witness who made recordings of another cooperating witness, ex-Galleon portfolio manager Adam Smith. It wasn’t clear what company Lin worked for.
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: Michael Hytha at mhytha@bloomberg.net
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