With the U.S. Government soon its commercial arguments rest criminal insider against co-founder of Galleon group Raj Rajaratnam, hedge fund Tycoon has a lot of explaining to do. The jury of the Federal Court in Manhattan have spent the last weeks of three-and-half listening to wiretap recordings of telephone conversations involving the 53 years old in what the Government said, it is the largest Fund hedge insider-trading scheme ever prosecuted.
"We know because, uh, one of our guys is member of the Board," Rajaratnam in an appeal recorded by prosecutors on October 7, 2008, on the acquisition of PeopleSupport told his friend Rajiv Goel will be announced at $12.25 per share. In another recorded appeal, Rajaratnam asked his friend Anil Kumar, "Should I buy a million?" after Kumar, then a McKinsey Director General, spoke of a transaction involving Advanced Micro Devices (AMD), a client of McKinsey. "You can't go wrong," said Kumar.
"The wiretap appears devastating," said Stephen Miller, a former Federal Prosecutor who is now a partner with the law firm deceive O'Connor. "And they do not seem to give much room to argue that boards do occur.
The lawyers who defended insider deals with the case say that Rajaratnam must explain its reasons for trades if he hoped for a verdict of acquittal. "Insider-trading charges are among the most difficult to beat, charges," explains Frank Razzano, a partner at Pepper Hamilton in Washington, which won an acquittal for a client in a case of 2005 in Ohio. "The only way to do so is if there is a just as plausible explanation" for why defence stocks were traded.
The defence team tried this approach as Rajaratnam battles accusations, he gets $ 45 million by trading on inside information in more than a dozen stocks over six years. He faces more than 20 years in prison if convicted. In careful cross-examination of the witnesses to the Government including Goel, Kumar and trader from ex-galion Adam Smith - who have all pleaded guilty and seeking leniency in exchange for their testimony - defence lawyer John Dowd and his team sought to prove that the Rajaratnam trades were based on Galleon research or news that are already circulating on the market.
Now, with the Government should rest his case early in the week of April 4, Patricia Pileggi, Schiff Hardin associate in New York, said that Rajaratnam must still explain why he exchanged shares of Goldman Sachs (GS)edge with its enterprise associéRajat Gupta, seated. In an administrative action, the Securities and Exchange Commission accused leaks inside information to Rajaratnam Gupta. Gupta denied wrongdoing.
Best chance to Rajaratnam can support any of the tips he receives were important by themselves in his decision to buy or sell the stock, said Miller. Instead, Rajaratnam can claim that boards were the parts of an included "mosaic" public information and non-public.
Anthony Sabino, a professor at the School of Business at Tobin at the University of Saint John in New York, said prosecutors will likely minimize any claim which Rajaratnam did not know traffic within the information: "they will say, ' you were in charge of a large Fund of couvertureque you didn't really know that you cross the line?" "."
The bottom line: With the wiretap evidence that Rajaratnam obtained advice, his defence shall provide explanations alternate for its trades.
Glovin, Hurtado and Van Voris are journalists for Bloomberg News.
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