Rajaratnam Gains Totaled $63 Million, FBI Agent Testifies

Professor Greg A. Jarrell
Greg A. Jarrell, professor of finance and economics at the William E. Simon Graduate School of Business Administration. Photographer: Dory McKenzie/William E. Simon Graduate School of Business Administration via Bloomberg

Galleon Group LLC co-founder Raj Rajaratnam gained $63.8 million through trading with inside information in 11 stocks, a federal agent testified.

James Barnacle Jr., a Federal Bureau of Investigation special agent, told jurors today at Rajaratnam’s insider-trading trial the defendant made, or avoided losses of, $63.8 million. The indictment of Rajaratnam alleged that illegal profit totaled $45 million.

“What’s the total profit and losses earned for each of the stocks?” Assistant U.S. Attorney Reed Brodsky asked.

“The total profit and loss avoided was $63,812,164,” said Barnacle, the last government witness at the Manhattan federal court trial.

Rajaratnam, 53, is on trial in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of trading on tips leaked by corporate insiders and hedge-fund traders. He has denied wrongdoing and says his trades were based on legitimate research.

The government said it may rest as early as today with the conclusion of Barnacle’s testimony. Rajaratnam’s defense case will follow.

Barnacle said that Galleon earned $53.8 million in profit and avoided losses of $9.9 million. Before he testified about Rajaratnam’s alleged gains, the government had him detail that Galleon stock trades coincided with conversations Rajaratnam had with people who allegedly tipped him.

Reviewed Reports

On cross-examination of Barnacle, defense attorney John Dowd began taking the agent through the transactions at issue and reviewing the press accounts, analyst reports and other factors that may have led to Galleon stock purchases.

The money manager’s lawyers today said they should be allowed to call a former U.S. Securities and Exchange Commission economist as an expert witness. Prosecutors sought to block the testimony.

Gregg Jarrell, the SEC’s top economist from 1984 to 1987, who teaches at the University of Rochester’s graduate school of business in New York, would testify he found nothing improper about Rajaratnam’s trades in Goldman Sachs Group Inc. stocks and dozens of other companies, defense lawyers said in court papers.

Jarrell’s opinion is that “it would have been reasonable for a well-informed professional investor to trade in the stock in the manner that occurred here,” Rajaratnam’s lawyer Dowd said today in a filing.

‘Simply Disagrees’

‘The prosecution “simply disagrees” with Jarrell, Rajaratnam’s lawyers said.

“The government raises straw-man arguments and mischaracterizes Professor Jarrell’s proffered testimony as legal conclusions -- all for the purpose of seeking to exclude all evidence that would permit the jury to draw any inference contrary to the inference the government wants it do draw,” the lawyers said, arguing that Jarrell’s testimony is proper and reliable.

Prosecutors in an April 1 called Jarrell’s anticipated testimony speculative or outside his expertise. They noted that a federal judge in Ohio limited his testimony in a 2005 criminal case against Roger Blackwell, a director of Worthington Foods Inc. who was convicted of trading on inside information.

Trading Pattern

Jarrell scrutinized Rajaratnam’s trading in Goldman Sachs, Advanced Micro Devices Inc., Akamai Technologies Inc., Xilinx Inc., Starent Networks Corp., AtRoad Inc. and other companies. Jarrell’s testimony would “ offer an opinion whether the public information would support the trading pattern at issue,” the defense said.

Jarrell concluded that the trades at issue “represent approximately 1 percent of Mr. Rajaratnam’s total trading” during the alleged conspiracy and just 1 percent of the value of Rajaratnam’s transactions, Dowd wrote.

U.S. District Judge Richard Holwell hasn’t decided whether to allow Jarrell to testify.

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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