Former Galleon Group LLC portfolio manager Adam Smith has provided “valuable” assistance as a “key” cooperating witness against Galleon co-founder Raj Rajaratnam, a U.S. prosecutor said today.
In a sentencing memo to the court, prosecutors said Smith was prepared to testify as a government witness at the insider-trading trial of former Goldman Sachs Group Inc. director Rajat Gupta. Gupta was convicted June 15 of securities fraud and conspiracy for passing tips to Rajaratnam about the bank.
The U.S. said Smith would have told Gupta jurors that David Loeb, Goldman Sachs Group Inc.’s head of Asia equity sales in New York, “at no time” provided or discussed inside information about the bank with him.
During Gupta’s trial, defense lawyers assailed Loeb, alleging he passed information about Intel Corp., Apple Inc. and Hewlett-Packard Co. to Rajaratnam. Gupta’s lawyers sought to play for Gupta’s jury two phone calls secretly recorded by the Federal Bureau of Investigation between Rajaratnam and Loeb as well as e-mails.
“The government would have called Smith as a witness to further demonstrate that at no time did Loeb ever provide and/or discuss inside information about Goldman Sachs with Smith, that Loeb specialized in Asian equities, and that Loeb never stated or indicated that he had access to insider information about Goldman Sachs,” Assistant U.S. Attorneys Reed Brodsky said in today’s memo.
U.S. District Judge Jed Rakoff, who presided over Gupta’s trial, rejected Gupta’s request, ruling the phone calls and e-mails were inadmissible hearsay.
Smith, who has a bachelor’s degree from Harvard University and an MBA from Harvard Business School, testified that he started working for Galleon as an analyst in 2002 after leaving Morgan Stanley. He was later promoted to portfolio manager. He told jurors at Rajaratnam’s trial that he began trading on illegal tips at Galleon as early as 2004.
Smith pleaded guilty to a count of conspiracy to commit securities fraud, which carries a statutory maximum term of five years in prison and a second count of scheming to defraud by engaging in insider-trading, which carries a term of as long as 20 years in prison, Brodsky said.
Smith is scheduled to be sentenced by Rakoff on June 26, said Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara.
Brodsky said Smith was the highest-ranking Galleon employee to plead guilty. He said Smith was able to provide the government with important information about Rajaratnam’s methods of avoiding detection by law enforcement and regulators and Rajaratnam’s trading codes, as well as describing the conduct of other Galleon employees. Smith began cooperating with the U.S. in November 2010, just months before Rajaratnam’s trial began.
Smith has continued to assist prosecutors, Brodsky said, and has provided “important assistance in connection with several ongoing government investigations into illegal insider trading” including an unidentified analyst working in Taiwan.
Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the government’s filing.
Frank Wohl, a lawyer for Loeb, and Michael Feldberg, a lawyer for Smith, didn’t immediately return on the government’s memo.
The case is U.S. v. Adam Smith, 11-cr-00079, U.S. District Court, Southern District of New York (Manhattan).