MANHATTAN (CN) – Two consultants may have been paid millions of dollars to testify that the inside-trade charges against Raj Rajaratnam are untrue and that he conducted only legitimate business at his Galleon hedge fund, a jury learned on Thursday.
The government says Rajaratnam made $63.8 million in ill-gotten gains, but one of the well-compensated witnesses testified on Thursday that the Galleon co-founder lost $3.8 million on the same trades.
Before this witness took the stand, former Galleon executive Richard Schutte finished his fourth day of grueling examination, with an admission that he signed a $2 million consulting agreement with Rajaratnam.
Schutte added that his former boss became his biggest investor in a new hedge fund called Spottail Capital.
On Sept. 1, 2010, Rajaratnam invested $10 million in Spottail, and he and his family added $15 million more on Jan. 4, 2011, weeks before trial, Schutte said.
He agreed with U.S. Attorney Reed Brodsky’s calculations that standard consulting and management fees show him earning $500,000 on these investments so far, but he vigorously denied that they were a quid-pro-quo for his testimony.
“Absolutely not,” Schutte insisted.
He added that the $2 million consulting fees were less than he was accustomed to making at Galleon, and it was the hardest-earned money of his life.
“2010 was probably the most difficult working year of my life,” Schutte said.
Shortly after he stepped down, the defense called Gregg Jarrell, a professor at the University of Rochester whose testimony the government unsuccessfully attempted to bar.
Defense attorney Terence Lynam wasted no time in asking Jarrell to disclose the money he accepted to testify.
Working at a rate of $600 per hour, Jarrell said he has been paid $200,000, and his firm Forensic Economics made $730,000 more.
Jarrell said Rajaratnam traded “mind-boggling” sums through Galleon: $141.5 million daily on stock days, adding up to $172 billion over the past five years.
He called Galleon an “event-driven” hedge fund, which traded largely in a technology industry known to be “very active” in mergers and acquisitions.
Prosecutors believe that he learned about major events in companies like Intel, Advanced Micro Devices (AMD), ATI Technologies, Goldman Sachs and Hilton through tipsters leaking nonpublic information.
Jarrell produced hundreds of pages of brightly illustrated slides, which stand in stark contrast to prosecutors’ monochromatic tables, bolstering the defense’s argument that the information was widely reported by press outlets and stock analysts.
One such slide announced in bright red that Rajaratnam lost $67 million on his investment in AMD, which prosecutors did not factor in their calculations of ill-gotten gains. The slide’s title asserted that Rajaratnam had a “Net Loss” of $3.8 million, a figure also displayed in a red font.
The defense projected that slide in front of a jury for more than 20 minutes.
At a hearing after the jury left, U.S. District Judge Richard Holwell barred the defense from projecting certain pages about Rajaratnam’s investment in Goldman Sachs, as prosecutors complained that the pages were misleading.
Jarrell will continue his testimony on Friday.