Rajiv Goel, the former Wharton classmate of Raj Rajaratnam who testified against the Galleon Group LLC co-founder, was sentenced to probation for his role in the biggest hedge fund insider-trading scandal in U.S. history.
U.S. District Judge Barbara Jones declined to impose a prison term on Goel, 54, yesterday in Manhattan federal court. She said Goel, who had faced as long as 25 years in prison, was crucial to the prosecution of the fund manager, now serving an 11-year prison term following his conviction last year. Like two other key witnesses against Rajaratnam who cooperated with the U.S., Goel was ordered to serve two years of probation.
“Mr. Goel, you showed good sense in deciding to cooperate,” Jones said just before she announced her sentence. “There is no excuse, but in this case, because of your cooperation I did think you showed your character in the extent of your cooperation, I think you did go beyond and for that you deserve a departure of probation.”
Goel, a former Intel Corp. (INTC) treasury group managing director who was arrested with Rajaratnam in October 2009, pleaded guilty in February 2010 to conspiracy and securities fraud. Goel testified over four days at Rajaratnam’s trial about their 25- year friendship, which began when they attended the Wharton School of the University of Pennsylvania. He said he conspired with Rajaratnam from 2007 to 2009 and passed him illegal tips about Intel.
‘Cajole and Seduce’
Just before sentencing was imposed yesterday, Goel vowed to work to make amends for the wrongdoing.
“I am deeply ashamed for the mistakes that I have made,” Goel said. “I apologize to all that have been hurt by my actions and in particular my wife and children who have been devastated by the trauma and grief that my actions have caused them. I had a serious lapse of judgment and good sense. I deeply apologize, once again, and hope that I am given another chance to repair the harm that I have caused.”
Assistant U.S. Attorney Reed Brodsky, who prosecuted the case, told the judge that Goel was one of the first defendants to agree to cooperate with the U.S. in their case against the fund manager. The information Goel provided to the government had served as the basis of six of 14 crimes prosecutors filed against Rajaratnam, he said.
Goel fell prey to Rajaratnam’s manipulation, Brodsky said. “Mr. Rajaratnam was able to cajole and seduce insiders to get information he wanted; he abused his friendship,” Brodksy said. “Mr. Goel did everything he could after he was arrested to make up for that.”
David Zornow, Geol’s defense lawyer, told the judge yesterday that his client led an unblemished, honorable life until Rajaratnam determined he could coerce him.
“I am firmly convinced that the conduct here was aberrational and stems from the unique relationship, with a guy who frankly, played Mr. Goel like a fiddle,” Zornow said.
The fund manager plied Goel with friendship, gifts and loans to make him feel beholden to him, the defense lawyer said.
“He was a master manipulator,” Zornow said. “He was a clever seducer and in Mr. Goel he found the perfect target. ‘‘He ingratiated himself over the years and was softening Mr. Goel up.’’
Jones yesterday noted that two other cooperators who testified against Rajaratnam at trial, Anil Kumar and Adam Smith, had also received sentences of probation.
‘‘This type of testimony and cooperation is essential and uniquely important in cases of insider trading,’’ she said. ‘‘These cases can be difficult to make unless there is someone on the inside who can explain what is going on,’’
Goel, who worked at Intel’s treasury group, testified he told Rajaratnam about Intel’s earnings in 2007 and about a $1 billion transaction in 2008.
He told jurors that his friendship with Rajaratnam grew closer in the years after they graduated from Wharton in 1983. The families vacationed together, said Goel, a native of Mumbai.
After returning to the U.S. from India and landing a job at Intel in 2000, Goel said, he repeatedly turned to Rajaratnam for financial assistance. Rajaratnam loaned Goel $100,000 to buy a home in 2005 and another $500,000 the next year when he needed support for his ailing father, Goel said.
Goel put the $500,000 in a Swiss bank and used a portion to fix his California home. He testified that he didn’t report the gift to the Internal Revenue Service.
‘‘Although Goel did not express it or complain about it, he had to overcome the emotional aspect of providing assistance and trial testimony that helped demonstrate his close friend was guilty of multiple counts of securities fraud,” Brodsky wrote in the memo.
Goel also provided the government with information about secret Swiss bank accounts that prosecutors used at trial. That information would have been impossible to obtain with Goel because of secrecy laws in Switzerland, prosecutors said.
In court yesterday, Brodsky said that that Goel “has continued to cooperate” in the government’s investigations.
Two other government witnesses who testified against Rajaratnam were spared prison terms.
Anil Kumar, the former McKinsey & Co. partner who was another Rajaratnam classmate and friend from Wharton, also faced a possible 25-year term. U.S. Circuit Judge Denny Chin in Manhattan sentenced Kumar in July to two years’ probation, citing his “extraordinary” cooperation.
Adam Smith, a former Galleon portfolio manager who worked for Rajaratnam and testified at his trial, also received a term of two years’ probation.
Another ex-Galleon trader, David Slaine, who wore a wire to record dozens of conversations with insider-trading suspects, also was rewarded for his cooperation, though he didn’t testify at Rajaratnam’s trial. Slaine, who was called to testify against fellow Galleon trader Zvi Goffer, was given three years’ probation.
Jones ordered Goel to pay a $10,000 fine and forfeit $266,649 immediately.
Goel left court accompanied by his family and his wife Alka and declined to comment.
“It’s been a long three-year ordeal for Mr. Goel and he is looking forward to rebuilding his life and dedicating himself to the principles of integrity and that he grew up with,” Zornow said in an interview after court.
The case is U.S. v. Goel, 1:10-cr-00090, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Patricia Hurtado in New York federal court at firstname.lastname@example.org.
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