Galleon Group LLC co-founder Raj Rajaratnam, at the center of largest crackdown on hedge-fund insider trading in U.S. history, didn’t take the witness stand as jurors heard one last wiretapped recording in his trial.
Prosecutors’ brief rebuttal of Rajaratnam’s weeklong defense included playing a recording of a phone call between Rajaratnam and former New Castle Funds LLC analyst Danielle Chiesi. During the Sept. 30, 2008, call, Chiesi asked Rajaratnam if he had bought 1 million shares of Advanced Micro Devices Inc. (AMD), calling the purchase “a very bold move unless you know what we know.”
Prosecutors, who are scheduled to begin their closing arguments to the jury tomorrow, have said Rajaratnam got a tip from Anil Kumar, a former McKinsey & Co. director, that Sunnyvale, California-based AMD was about to announce the sale of a manufacturing entity to Mubadala Development Co., a sovereign wealth company operated by Abu Dhabi.
“You really didn’t do the million shares to buy it?” Chiesi asked on the call.
“I thought it was you, that’s why I called you,” Rajaratnam said in what was the last of about four dozen secretly recorded conversations played for jurors during the trial.
The close of evidence yesterday came six weeks into a trial that might send Rajaratnam to prison for 20 years. Rajaratnam, 53, is accused of gaining $63.8 million from tips leaked by corporate insiders and hedge-fund traders about a dozen stocks, including Goldman Sachs Group Inc. (GS), Intel Corp. (INTC), Clearwire Corp. and Akamai Technologies Inc.
The Sri Lankan-born money manager denies wrongdoing, saying he based his trades on research.
After prosecutors and Rajaratnam’s lawyers complete their closing arguments, the jury will begin its deliberations.
In the U.S., criminal defendants can’t be compelled to testify, and the defense isn’t required to explain why Rajaratnam didn’t take the stand. Prosecutors are barred from commenting on his decision not to testify during their summation.
“When you’re caught on a wiretap making powerfully incriminating statements, it’s very difficult to testify,” said Anthony Barkow, a former prosecutor in Manhattan who runs a center on criminal law at New York University and isn’t involved in the case. “He can try to challenge the tapes by saying he meant something else, but that usually doesn’t work.”
The defense case focused on the testimony of former Galleon U.S. President Richard Schutte and of Gregg Jarrell, the top economist for the U.S. Securities and Exchange Commission from 1984 to 1987.
They told jurors that stock trading trends, analyst reports and news accounts circulating in the marketplace gave Rajaratnam a lawful basis to make the stock trades that prosecutors say were corrupt.
Before the defense rested yesterday, Assistant U.S. Attorney Jonathan Streeter sparred with Jarrell over whether his conclusions were accurate.
At one point Streeter began a question to Jarrell about Rajaratnam’s selling shares in Google Inc. (GOOG) -- after allegedly getting tipped about its earnings -- at the same time that analysts were predicting positive results for the company.
“I don’t think that’s relevant,” Jarrell said.
In rebuttal of the defense case, prosecutors re-called James Barnacle, a Federal Bureau of Investigation agent, to correct errors in his earlier testimony about Rajaratnam’s trades. They also played the wiretapped conversation between Rajaratnam and Chiesi, who has pleaded guilty to insider trading. She didn’t testify at the trial.
In his defense, Rajaratnam relied on cross-examination of government witnesses, three of whom pleaded guilty to insider trading and testified in exchange for leniency.
Rajaratnam’s lawyers also called as a character witness Geoffrey Canada, creator of the Harlem Children’s Zone, a New York nonprofit group focused on education. Canada, who was featured last year in the documentary film “Waiting for Superman,” told jurors of Rajaratnam’s generosity.
The defense also called John Pernell, who runs the Polaris Prime Technology Fund, and Robert Hotz, a lawyer at Akin Gump Strauss Hauer & Feld LLP, to contradict the testimony of former Galleon trader Adam Smith, a government witness.
Barkow, the NYU professor, said he wasn’t surprised Rajaratnam didn’t testify.
“When you’re caught on tape saying something relatively unambiguous, you can’t risk compounding an already bad situation by making the jury think that you’re lying to them by offering an implausible explanation,” he said. “It’s very, very dangerous for a defendant to testify when there’s ammunition like a wiretap.”
Rajaratnam is charged with five counts of conspiracy and nine counts of securities fraud. The conspiracy counts each carry a maximum five-year prison sentence and the fraud counts each carry a maximum 20-year term.
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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