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Thursday, April 25, 2024 | Back issues
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Fugitive Leaked Hilton Deal Info, Feds Say

MANHATTAN (CN) - Galleon hedge fund co-founder Raj Rajaratnam made $4 million in his inside-trading scheme through a now-fugitive's tip on the 2007 acquisition of the Hilton hotel chain, federal prosecutors told the court Monday.

Rajaratnam is accused of making $45 million from what the government calls the largest insider-trading scheme in history, which has brought guilty pleas from more than 15 alleged associates and tipsters.

As indictments against co-conspirators multiplied, the Hilton tipster, Deep Shah, never returned from a "vacation" he took to India in December 2007 to visit his sick father, a government witness testified on Monday. Shah was reportedly declared a fugitive two years ago for his alleged role in the scheme.

Prosecutors say Shah informed Galleon employee Roomy Khan on July 2, 2007, that the private equity group Blackstone planned to acquire Hilton.

The deal was announced a day later, after the stock market closed, evidence showed. Before the closing bell rang, however, Galleon bought about 400,000 shares of stock in Hilton. Those shares earned the hedge fund $4 million, Assistant U.S. Attorney Andrew Michaelson said.

Government witness Margaret Holloway, a Moody's senior analyst, testified on Monday that she discussed the confidential matter with her co-worker Shah, in the normal course of determining the credit rating of the hotel chain. She is not accused of any wrongdoing.

Rajaratnam's defense attorneys have maintained that the alleged inside trades came from vigorous, legal research of the market based on media coverage, analyst reports, business filings and other publicly available information.

On cross-examination, defense attorney Michael Starr submitted several of these into evidence, including two analyst reports strongly urging investors to buy Hilton shares days before the public disclosure of Blackstone's acquisition.

One report from UBS, dated July 2, 2007, cited Hilton as a "Top Pick." Another report from Jefferies & Co. a day later called Hilton the "Pick of the Week," and noted that three other hotel chains recently had been purchased by private equity firms.

Rumors about Blackstone's prospective acquisition of Hilton had been circulating for months, Starr said.

A Lehman Brothers employee also sent three Galleon employees an e-mail on May 31, 2007, strongly urging the hedge fund to buy Hilton shares, evidence showed.

"I KNOW THE STOCKS ARE MOVING BUT I STILL THINK THEY ARE A BUY!" the e-mail said.

On redirect, Michaelson said that Galleon's 400,000 share purchase of Hilton stock was timed within hours of the suspected phone call from Shah to Khan.

Holloway testified that she received a call at 2:15 p.m., informing her of the deal's impending public announcement. She added that she told Shah about the conversation shortly after it occurred.

The government displayed a chart of the hourly movements of Hilton's stock in early July 2007.

Holloway said that its value "started to creep up" shortly after her conversation with Shah.

Witness testimony continues this afternoon with Intel executive Sriram Viswanathan, who said before recess that his co-worker Rajiv Goel leaked information about the company's investment of more than $3 billion into a Clearwire, which was then developing its "next generation" of 4G Internet with Sprint.

Goel is reportedly a key cooperating witness against Rajaratnam, and his voice has been heard already at trial as in government wiretaps.

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