Galleon Group LLC co-founder Raj Rajaratnam, the hedge fund manager convicted of insider trading, will be heard again on recorded wiretaps in the trial of his former deputy, Zvi Goffer, the judge overseeing the case said.
Rajaratnam, who didn’t testify in his trial, was convicted of 14 criminal counts last week by jurors who heard him talking in dozens of wiretapped conversations with employees and alleged co-conspirators. U.S. District Judge Richard Sullivan said recordings of Rajaratnam will be played in the case of Goffer and two others whose trial began yesterday with jury selection.
“Mr. Rajaratnam is going to be a factor in this trial,” Sullivan told lawyers in a hearing yesterday before the start of jury selection in the same Manhattan courthouse where Rajaratnam was convicted of directing the biggest illegal stock-tipping ring since the 1980s. “He’s going to be mentioned or in fact heard on these tapes.”
Goffer, 34, who left Galleon to work at Schottenfeld Group LLC and then founded his own firm, Incremental Capital LLC, is on trial along with his brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both ex-traders at Incremental. Their trial begins a second round of cases growing out of a nationwide insider- trading investigation.
Referred to by some of his alleged accomplices as “Octopussy,” Zvi Goffer was at the center of the insider- trading scheme, one of three overlapping rings tied to Galleon, according to prosecutors. The reference to the 1983 James Bond movie was due to Goffer’s many sources of information, prosecutors have said.
Sullivan told lawyers he expects jury selection to be completed today, with opening statements to follow.
45 Possible Jurors
Yesterday, the judge questioned 45 potential jurors, seeking to identify biases that would prevent them from serving on the jury. He told them the trial may take as long as six weeks.
“Have any of you seen, heard, or read news reports about the trial of Raj Rajaratnam,” Sullivan asked, one of the 68 items on a questionnaire he read to the panel.
Sullivan and lawyers in the case questioned many of the people, including 11 who said they’d heard news of the Rajaratnam case, individually, in a jury room away from the rest of the panel. Sullivan permitted reporters to attend the questioning. In the Rajaratnam trial, U.S. District Judge Richard Holwell barred reporters when individual members of the jury pool were being questioned.
Panel members who said they knew of the Rajaratnam case were told that Zvi Goffer was a former employee and that the trial would include the recorded conversations of Rajaratnam with Goffer and others.
In one wiretap, Kimelman “says some very derogatory things about risk managers,” ridiculing them as the enemy, his lawyer, Michael Sommer, told Sullivan, arguing to bar a Credit Suisse Group AG (CSGN) risk manager from the panel. Sullivan declined to exclude the Credit Suisse executive.
The Goffer brothers and Kimelman are charged with conspiracy and securities fraud. They face as long as 20 years in prison if convicted of fraud. Emanuel Goffer last week lost a bid for a two-week postponement of the trial because of what he called “inflammatory” publicity from Rajaratnam’s May 11 conviction.
“There’s an appeals issue even before Zvi Goffer crosses the courthouse threshold, presuming he is convicted,” said Anthony Sabino, a professor at the Tobin School of Business at St. John’s University in New York.
“The defendant can claim the publicity in the aftermath of the Rajaratnam guilty verdict harmed his chances for a fair trial,” Sabino said. “How can you find an unbiased group of people who aren’t tainted by what’s in the news?”
Ropes & Gray
Prosecutors allege that Zvi Goffer paid tens of thousands of dollars to two Ropes & Gray LLP attorneys for information on transactions the law firm was handling.
The government says Goffer’s sources passed tips on acquisitions of companies including 3Com Corp., Axcan Pharma Inc., Kronos Inc. and Hilton Hotels Corp.
The scheme netted at least $20 million in profit, the U.S. Securities and Exchange Commission alleged when it filed a related civil lawsuit. All three men denied wrongdoing.
Their arrest in November 2009, just weeks after Rajaratnam was detained on insider-trading charges, came in a second wave of cases brought by the FBI and Manhattan U.S. Attorney Preet Bharara. Fourteen people were charged originally in Goffer’s alleged ring. Ten pleaded guilty. One, Deep Shah, is a fugitive.
As they did with Rajaratnam, prosecutors will call cooperating witnesses who allegedly participated in the scheme. One is Brien Santarlas, a former Ropes & Gray lawyer who pleaded guilty in 2009 to passing tips about transactions, Assistant U.S. Attorney Andrew Fish told the judge.
The Goffer trial, like that of Rajaratnam, will feature conversations secretly recorded by the Federal Bureau of Investigation. Fish said at a May 10 hearing that he expects to play at least 60 recordings, some lasting more 30 minutes.
Prosecutors have said Goffer and his co-conspirators spoke in code with one another and tried to hide their trades. Excerpts of wiretaps in court records show the men sometimes used colorful terms.
In one call, Goffer and a co-defendant discussed whether one of their sources of inside information was a “rat,” according to a government summary of the wiretaps.
“We have become so paranoid for no reason,” Goffer said. In another call, he cautioned lawyer Jason Goldfarb, who pleaded guilty to conspiracy and securities fraud on April 21, about getting caught.
“Someone’s going to jail, going directly to jail, so don’t let it be you, OK?” Goffer said, adding, “That’s a ticket to the big house.”
In another call, Goffer said he was pleased that others were also trading on the same stock, because it would help him evade detection by regulators and prosecutors.
“All right then, you know what?” Goffer said, according to the FBI summary. “All it does is give me more cover. God Bless America,”
FBI agents followed Goffer and his co-defendants for months as they traded information at New York street corners and gyms, according to court records.
Sabino said such talk will make it difficult for Goffer’s defense lawyers to argue he relied on analyst reports instead of secret tips, as Rajaratnam’s lawyers did at his trial.
“These guys are allegedly better educated than a mob defendant, but their conversations sound a lot like ‘Sopranos’ dialogue,” Sabino said, referring to the television show.
“This is blunt conversation where you have one defendant asking if a guy is a rat,” he said. “Any juror who watches a lot of TV will know that they sound more like gangsters committing crimes than real traders.”
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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