Rajaratnam Judge Condemned Insider Trading in Previous Cases
Richard Holwell, the Manhattan federal judge overseeing the trial of Raj Rajaratnam, is a former corporate lawyer who condemned insider trading in two recent cases he has handled during his eight years on the bench.
At the 2008 sentencing of Eugene Plotkin, then a 28-year- old former Goldman Sachs Group Inc. (GS) banker who pleaded guilty to insider trading, a defense attorney urged Holwell to impose a sentence below federal sentencing guidelines because of Plotkin’s youth and because a co-defendant was the mastermind behind the scheme. The judge refused.
“This was not a simple and singular lapse of judgment, but an egregious breach of trust, a fraud, pure and simple, by a person who had no moral compass,” Holwell said, sentencing Plotkin to 57 months in prison, within federal guidelines.
Rajaratnam, the co-founder of hedge-fund company Galleon Group LLC, is accused of making $45 million in illicit trades from insider tips. The 53-year old native of Sri Lanka, who faces as much as 20 years in prison on the most serious charges against him, denies wrongdoing. It’s the largest insider-trading case ever involving hedge funds.
Rajaratnam’s trial, which starts today with jury selection, may last two months and feature evidence from 2,400 wiretapped conversations with 130 people and involves alleged inside tips on 37 companies, including Goldman Sachs, Google Inc. (GOOG), Hilton Hotels Corp. and Advanced Micro Devices Inc. (AMD)
Holwell, 64, is responsible for allowing wiretap evidence to be used in Rajaratnam’s insider-trading trial. In November he ruled that the U.S. complied with federal wiretapping laws in its investigation of both Rajaratnam and former hedge fund consultant Danielle Chiesi. Chiesi has pleaded guilty to three counts of conspiracy and isn’t cooperating with prosecutors.
The judge rejected a defense argument that the recordings had to be excluded because federal agents allegedly misled the judge who authorized the wiretaps.
The ruling could prove harmful to Rajaratnam, said Jacob Frenkel, a former lawyer with the Securities and Exchange Commission who is now a partner at Shulman Rogers Gandal Pordy & Eckerin in Potomac, Maryland. He isn’t involved in the case.
“A defendant’s own words are the most powerful tool for the government,” Frenkel said in an interview. At the same time, he said, “there could be different interpretations to the tapes,” as Rajaratnam has argued.
Last year, Holwell sentenced ex-Atheros Communications Inc. Vice President Ali Hariri to 18 months in prison for leaking tips to Ali Far, a co-founder of hedge fund Spherix Capital LLC. Holwell sentenced Hariri to less than the amount called for under the sentencing guidelines, 24 to 30 months, after noting that Hariri didn’t directly profit from Far’s trades.
Far and his partner at Spherix, Richard Choo-Beng Lee, have both pleaded guilty and are cooperating with prosecutors. Far and Lee are both linked to Rajaratnam’s insider trading ring, the U.S. has said.
Holwell said at Hariri’s sentencing that insider trading threatened the integrity of the marketplace.
“The critical wrong is the wrong to the proper operation of an efficient market,” Holwell said. “What the courts should be focused on in these cases is not so much dollars but what is the actual nature of the conduct at stake and what is the risk to a fair marketplace for this type of behavior.”
Before he was nominated to the bench by President George W. Bush, Holwell spent more than 30 years as a business litigator, rising to be chairman of the litigation department at New York- based White & Case LLP. Holwell, who was confirmed as a judge in 2003, declined to be interviewed for this story.
Holwell handled business and securities cases at White & Case, and his clients included pharmaceutical-maker Ciba-Geigy Corp., heavy equipment-maker Clark Equipment Co. and TLD Group, which makes airport ground-support equipment, according to court records. Much of his practice focused on untangling complex business and securities disputes.
Holwell presided over an investor suit against Vivendi SA (VIV), the Paris-based owner of the world’s biggest music company. In that case, one of only a handful of securities-fraud class actions to be tried, jurors on Jan. 29, 2010, found that Vivendi had misled investors 57 times from 2000 to 2002.
Last month, Holwell threw out part of the Vivendi verdict after a 2010 U.S. Supreme Court decision limited securities suits involving non-U.S. companies. His ruling eliminated more than 80 percent of the $9.3 billion in damages claimed by the class of investors, Vivendi said at the time.
Holwell, a graduate of Villanova University and Columbia University School of Law, joined White & Case in 1971, after spending a year at Cambridge University. He remained at the firm, which has 37 offices in 25 countries, according to its website, until his nomination to the bench was confirmed by the Senate in 2003.
White & Case declined to permit any of its lawyers to be interviewed, citing a policy not to talk about partners who become judges. It said in an e-mail that Holwell is a lawyer “of the highest quality and integrity.”
Hugh Verrier, White & Case’s chairman, didn’t return phone messages seeking information about Holwell’s years at the firm.
Holwell’s net worth at the end of 2009 was between $4.1 million and $13.9 million, according to a Bloomberg News analysis of his financial disclosure report filed June 14. The form only requires judges to list a range of values, not a precise amount, for their assets.
Holwell bought and sold mutual funds, index funds and other investments, according to the form. He disclosed values for 42 assets, including his share of a partnership, valued at between $1 million and $5 million, that owns his New York building. He also owned a variety of bond funds, it showed.
Holwell successfully represented Credit Lyonnais SA in seizing control of the MGM/United Artists Inc. film studio after the former owner, Italian financier Giancarlo Parretti, allegedly defaulted on loans taken to finance the 1990 purchase, according to a 2001 White & Case website biography of Holwell.
Holwell also did pro bono work at White & Case. A 2004 firm statement cited his work on a 17-year-long employment- discrimination case that led to changes in hiring and promotion practices at New York’s Long Island Rail Road.
James W. Quinn, Vivendi’s co-lead trial lawyer in the securities fraud class action trial, said Holwell is a courteous judge who mostly gives lawyers the room to try their cases.
“I think he handles high-profile cases as well as any judge I’ve had,” said Quinn, who is co-chairman of the litigation department at Weil, Gotshal & Manges LLP.
The case is U.S. v. Rajaratnam, 09-cr-01184, U.S. District Court, Southern District of New York Manhattan).
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