A day after a jury heard recordings of Galleon Group LLC co-founder Raj Rajaratnam thanking Danielle Chiesi for a stock tip, a government agent testified about Rajaratnam’s phone calls, trading dates and stock profits.
Prosecutors in Manhattan federal court today presented charts prepared by FBI Special Agent James Barnacle Jr. connecting phone records, wiretaps, e-mails, share prices and Galleon stock-trading records in an attempt to prove Rajaratnam used confidential information to pick stocks. The U.S. said it expects to rest its criminal case against Rajaratnam tomorrow.
One chart showed a series of calls between phones associated with Rajaratnam and Rajiv Goel, a friend who worked for Intel Corp. (INTC)’s treasury group, in early April 2007. Rajaratnam later sent an instant message to Galleon trader Ian Horowitz: “Short 1 million intc.” “INTC” is Intel’s stock ticker. In a short sale, an investor sells borrowed shares, betting their price will fall and hoping to replace them later with cheaper shares while profiting from the difference.
Horowitz responded: “k,” and immediately executed the transaction, according to the records.
Galleon funds tied to Rajaratnam profited or avoided losses totaling $2.5 million on Intel trades from April 13 to 17, Barnacle said.
The Federal Bureau of Investigation agent also testified about Galleon trading in shares of Clearwire Corp. (CLWR), PeopleSupport Inc., ATI Technologies Inc., Advanced Micro Devices Inc. (AMD), EBay Inc. (EBAY), Integrated Circuit Systems Inc. and Xilinx Inc. (XLNX)
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. He has denied wrongdoing and says his trades were based on legitimate research.
Assistant U.S. Attorney Reed Brodsky followed up on yesterday’s wiretapped recordings of Chiesi, a former analyst at New Castle Funds LLC, passing what prosecutors said was an illegal tip that Akamai Technologies Inc. (AKAM) would lower its earnings forecast.
Under Brodsky’s questioning, Barnacle testified today that Galleon and New Castle bought Akamai put options and sold the stock short, in July 2008 after Chiesi’s tip, for a total $5.1 million profit for Galleon and $2.4 million for New Castle.
Roomy Khan Tapes
Before the start of testimony, U.S. District Judge Richard Holwell granted a defense request to bar prosecutors from offering as evidence videotapes of ex-Intel executive Roomy Khan faxing him documents in 1997 and 1998.
Holwell said the videotapes would have been “unfair” to Rajaratnam and had “diminished probative value.” Prosecutors wanted to use them to support a claim that Khan leaked inside tips to Rajaratnam in 2006 and 2007. Holwell said prosecutors may use other evidence to prove that charge.
Khan, who has pleaded guilty in the case, has been cooperating with prosecutors. She won’t testify at the trial, prosecutors have said.
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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