Rajaratnam Prosecution Finishes Case Against Galleon Co-Founder

Galleon Group Co-Founder Raj Rajaratnam
Raj Rajaratnam, the Galleon Group co-founder accused of insider trading. Photographer: Jin Lee/Bloomberg

U.S. prosecutors finished presenting their case against Raj Rajaratnam after presenting wiretaps and witness testimony in an effort to show his Galleon Group LLC hedge fund made millions of dollars through insider trading.

“The government rests,” Assistant U.S. Attorney Andrew Michaelson told U.S. District Judge Richard Holwell in Manhattan yesterday. The judge dismissed the jury until April 11.

After the jurors left the courtroom, the defense asked Holwell to throw out the case, saying the government has failed to prove its case. Holwell said he wouldn’t issue an immediate ruling.

Barring a dismissal by the judge, the defense will present its case next. Rajaratnam, 53, hasn’t said whether he will take the witness stand. In the U.S., the accused can’t be compelled to testify in his own defense.

In cross-examining government witnesses, Rajaratnam’s lawyers attempted to show that their client traded on a “mosaic” of publicly available information, not insider tips.

“His best chance of being acquitted, or at least getting a hung jury, is to continue presenting his mosaic defense,” said Andrew Stoltmann, a lawyer in Chicago who represents investors in securities litigation and isn’t involved in the Rajaratnam case. “He’ll certainly present more witnesses to establish the information was public.”

Hedge-Fund Crackdown

Rajaratnam is the central figure in the largest crackdown on hedge-fund insider trading in U.S. history. His trial began March 8. The Sri Lankan-born money manager is accused of making profits and avoiding losses totaling $63.8 million from tips leaked by corporate insiders. Rajaratnam denies wrongdoing, saying he based the trades on research.

He faces five counts of conspiracy and nine counts of securities fraud, each of which carries a maximum sentence of 20 years in prison.

For the past month, prosecutors have presented witnesses and wiretapped recordings showing that Rajaratnam had at least 10 sources of inside information throughout Wall Street and the U.S. business community.

Witnesses testified that Rajaratnam got leaks originating with a Goldman Sachs Group Inc. board member, a consultant at McKinsey & Co., executives of other public companies and several traders.

Three government witnesses described how they shared inside information with Rajaratnam. Each of the three has pleaded guilty and is testifying for the government in exchange for leniency.

School ‘Pal’

Anil Kumar, a former director at McKinsey, said he leaked client information to Rajaratnam beginning in 2004, including updates on Advanced Micro Devices Inc.’s acquisition of ATI Technologies Inc. in 2006. Rajiv Goel, who worked in chipmaker Intel Corp.’s treasury group, told how he passed tips to Rajaratnam, his “pal” from business school.

An ex-Galleon portfolio manager, Adam Smith, reviewed a half-dozen stocks about which he said he shared inside information with Rajaratnam, testifying that the hedge fund used illegal data to get an “edge” in its trading.

The witness testimony was supplemented by recordings of Rajaratnam’s phone calls secretly made before his October 2009 arrest.

In one, Rajaratnam is heard asking Kumar, “Should I buy a million?” after Kumar told him about a transaction involving chipmaker Advanced Micro Devices, a McKinsey client. “You cannot go wrong,” Kumar replied, according to the recording.

‘On the Board’

Jurors heard a recording of Rajaratnam telling a colleague that he has a source “on the board of Goldman Sachs,” and another of Rajat Gupta, then a Goldman Sachs director, telling Rajaratnam about internal discussions at the bank. Prosecutors, who haven’t charged Gupta with a crime, said he’s a co-conspirator.

James Barnacle Jr., a Federal Bureau of Investigation special agent, told jurors yesterday that Rajaratnam made, or avoided losses of, about $63.8 million. The indictment of Rajaratnam alleged that illegal profit totaled $45 million. Barnacle said that Galleon earned $53.8 million in profit and avoided losses of $9.9 million.

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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