Rajaratnam Sought to ‘Conquer’ Wall Street, U.S. Says as Defense Responds

Raj Rajaratnam, the Galleon Group LLC co-founder accused at trial of insider trading, sought to “conquer” Wall Street by corrupting friends and employees of his hedge fund, a prosecutor told jurors.

Assistant U.S. Attorney Reed Brodsky, in closing arguments yesterday in Manhattan federal court, said Rajaratnam was guilty of more than just insider trading: He was a corrupter of others.

Rajaratnam “corrupted his friends and employees” to “get secret information,” Brodsky said. The goal was to make money, win business and “conquer the stock market at the expense of the law,” the prosecutor said.

The prosecutor’s 4 1/2-hour summation, followed by the first hour of the defense argument, came in the seventh week of 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.

“Getting information that others didn’t have was very valuable,” Brodsky said. “In a world of uncertainty, he had certainty because he had insiders who knew tomorrow’s news today.”

Photographer: Louis Lanzano/Bloomberg

Raj Rajaratnam, the Galleon Group LLC co-founder accused of insider trading, right, arrives at federal court with his attorney, John Dowd, in New York. Close

Raj Rajaratnam, the Galleon Group LLC co-founder accused of insider trading, right,... Read More

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Photographer: Louis Lanzano/Bloomberg

Raj Rajaratnam, the Galleon Group LLC co-founder accused of insider trading, right, arrives at federal court with his attorney, John Dowd, in New York.

Among fiercely competitive hedge funds, Rajaratnam “thought making a winning trade, beating out the rest of Wall Street, was a conquest,” the prosecutor said. “It was about being on top.”

‘Devastating Evidence’

As he has throughout the trial, Rajaratnam sat quietly in a second row of defense lawyers, his hands folded, while Brodsky told jurors that government wiretaps of Rajaratnam’s conversations were “devastating evidence of the defendant committing crimes in real time.” The audience in the courtroom included Preet Bharara, the U.S. attorney in Manhattan.

John Dowd, an attorney for the Sri Lankan-born money manager, spent the first hour of his summation urging an acquittal, accusing the government of “smearing” his client. He repeatedly said the U.S. case was “a fiction.”

“The government is trying to make Galleon into something it wasn’t,” Dowd said. “Rajaratnam worked hard for Galleon investors.”

Jurors saw that Rajaratnam was hard-working, that Galleon’s research operation was extensive and that Rajaratnam demanded transparency at meetings where analysts defended investment ideas, Dowd said. The lawyer assailed government witnesses for their “unreliable” testimony and said prosecutors gave several who pleaded guilty a “free pass” in return for their testimony.

‘You Must Acquit’

“If it’s public, you must acquit,” he said, as he began reviewing press accounts and analysts’ reports that the defense said formed the basis for Rajaratnam’s trades. “Raj traded on the basis of public information.”

Dowd also told jurors that the alleged tips weren’t material or didn’t come from sources who breached a duty to a company, and that they didn’t constitute illegal information.

“The government hasn’t proven its case,” he said.

For most of the day, Brodsky took jurors through evidence that Rajaratnam engaged in five insider-trading conspiracies, citing leaks he allegedly got from former McKinsey & Co. partner Anil Kumar, ex-Intel executive Rajiv Goel, former Galleon portfolio manager Adam Smith, New Castle Funds LLC analyst Danielle Chiesi and former trader Roomy Khan.

Kumar, Goel and Smith pleaded guilty and testified for the government. Chiesi and Khan pleaded guilty and didn’t testify.

Rajaratnam “corrupted Kumar,” Brodsky charged, reminding jurors that Kumar had proposed that Galleon hire McKinsey for consulting work. Instead, Brodsky said, Rajaratnam lured Kumar into an illegal scheme by paying him $500,000 through a secret overseas account.

‘Tell-Tale Sign’

Wiring money offshore was a “tell-tale sign,” he said.

The prosecutor reviewed Kumar’s alleged tips to Rajaratnam about a transaction involving Advanced Micro Devices Inc. (AMD) -- a McKinsey client -- and ATI Technologies Inc., and showed how Rajaratnam’s trades corresponded with leaks. Returning to wiretapped conversations between Kumar and Rajaratnam on other transactions, Brodsky said Rajaratnam’s own voice was the “most powerful evidence of the defendant’s guilt.”

“Let’s go to the tapes,” Brodsky said more than once as he repeatedly turned to the wiretaps for support. He displayed excerpts of conversations on a screen and played tapes of Rajaratnam and others speaking.

Brodsky said Rajaratnam also lured Goel, his friend from graduate school, into providing tips about Intel after loaning Goel $100,000 and giving him $500,000.

‘Enough Incentive’

“That money and their friendship gave Mr. Goel more than enough incentive” for him to become Rajaratnam’s “corporate spy,” Brodsky said.

Brodsky recounted how Goel had said he leaked information to Rajaratnam about Intel’s investment in a new wireless network company formed by Clearwire and Sprint Nextel Corp. (S)

Brodsky moved on to alleged tips that Rajaratnam got in 2008 from Rajat Gupta, then a Goldman Sachs board member and a business partner of Rajaratnam’s. One tip came on Sept. 24, 2008, that Warren Buffett’s Berkshire Hathaway Inc. would invest $5 billion in the bank. Another was about the bank’s unexpected losses.

“Rajat Gupta was at the pinnacle of power, sitting on one of the most prestigious boards in the world,” Brodsky said, recounting how Gupta was heard on one wiretap passing tips about possible Goldman investments to Rajaratnam.

‘Breached His Duties’

“How do you know Gupta breached his duties? Because you heard Gupta do it,” Brodsky said.

Brodsky said the wiretaps and other evidence debunked the defense argument that Rajaratnam traded on analysts’ reports and news such as a report about Goldman Sachs from Theflyonthewall.com Inc. that was cited by defense lawyers.

“You don’t trade based upon a rumor, you don’t trade based upon a Flyonthewall report,” Brodsky said. “You trade based upon the real fly on the wall: Mr. Gupta, the person who is in the Goldman board room.”

Gupta, who was accused by U.S. regulators in an administrative action of leaking tips to Rajaratnam, hasn’t been criminally charged.

The prosecutor went through some of the government’s evidence, telling jurors, “I can’t get to everything.” He said an e-mail that Smith, the ex-Galleon trader, sent to Rajaratnam titled “the two eyes” was “a smoking gun” reference to an illegal tip about a pending merger between Integrated Circuit Systems Inc. and Integrated Device Technology Inc. (IDTI) -- both of which begin with the letter “I.”

Assailing Arguments

Brodsky assailed defense arguments as “flawed” and “absurd.”

“It’s going to get complicated,” he said as he showed a timeline of what he said were defense arguments explaining why Rajaratnam bought shares in Intel before the company released positive earnings.

Prosecutors say Rajaratnam, vacationing in the Caribbean, got tipped to the news by Goel, while the defense said the stock purchases were based on research including a report by an analyst in China.

“Does it make any sense that the defendant is sitting in the Caribbean trading on some Beijing research?” Brodsky asked. “Or does it make sense that he is trading on the tip?”

Dowd used the start of his argument to respond. He cited “lies” that Kumar allegedly told to Galleon about his foreign account as proof that Rajaratnam wasn’t scheming with Kumar.

“This was a false document Kumar created,” Dowd said, citing a tax form. “He created it to deceive Galleon.”

Dowd said his client had a “duty” to investors to ask questions and trade on the information he got. After telling jurors they had been “badly misled” by the government, Dowd said he will continue his closing argument today.

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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