A Guide to the Galleon CaseBy and
On Mar. 8, one of the biggest insider trading cases in U.S. history went to trial in a federal district courthouse in Lower Manhattan. Sri Lankan billionaire Raj Rajaratnam, 53, faces 14 separate counts of securities fraud and conspiracy. The co-founder of the Galleon Group hedge fund, Rajaratnam is alleged to have masterminded an insider trading ring that netted his firm $45 million. As the Galleon case ripples outward—some three dozen former traders, executives, and lawyers have been charged, two dozen of whom have pleaded guilty—it is rocking the secretive world of U.S. hedge funds and the expert networks that supply information.
Related cases have been opened against the so-called Goffer ring, a network including several former Galleon employees allegedly led by Zvi Goffer, aka "the Octopussy," and against consultants linked to the expert networking firm Primary Global Research.
The prosecution's case relies on FBI wiretaps and confidential informants; prosecutors say they may play more than 170 phone conversations that show Rajaratnam trading illegally on more than 35 stocks, including Intel (INTC), Hilton, IBM (IBM), and eBay (EBAY). "Mr. Rajaratnam traded on such information again and again and again," said Assistant U.S. Attorney Jonathan Streeter in his opening statement. "He knew what he was doing was illegal." Rajaratnam, who has pleaded not guilty, has poured more than $20 million into his defense, according to The New York Times. His lawyers, from Akin Gump Strauss Hauer & Feld, are led by John Dowd, who exposed Cincinnati Reds legend Pete Rose's betting scandal.
On Mar. 1, the probe reached into the uppermost ranks of the business world as the Securities and Exchange Commission accused former McKinsey Managing Director Rajat Gupta of illegally sharing information with Rajaratnam. Gupta, who denies wrongdoing, is a former director of Goldman Sachs (GS) and Procter & Gamble (PG)—and another piece of this complex puzzle.