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Thursday, May 23, 2024 | Back issues
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Galleon Witness Fights Inside-Trading Charge

MANHATTAN (CN) - In his third day on the stand, a former executive of the Galleon hedge fund continued to defend his former boss Raj Rajaratnam, who is accused of making $63 million while spearheading the largest insider trading scheme in history.

Richard Schutte, who was trusted to wind down Galleon's operations after Rajaratnam's arrest, has testified since Tuesday that Galleon trades were based on research, not inside tips.

The former executive described taking the lead on closing the hedge fund, which entailed 65-hour workweeks to liquidate and return more than 90 percent of investments.

Following Rajaratnam's October 2009 arrest, Schutte says he did not take a break until Thanksgiving. Schutte swore that he never saw Rajaratnam engage in insider trading, and spoke at length about Galleon's operations and its closing during three days of direct examination.

During that time, defense attorney Michael Starr submitted reams of documents about every stock involved in the prosecution's case, and suggested that the hedge fund's analysts and other employees already had figured out the information that Rajaratnam was accused of learning illegally.

As cross-examination began on Wednesday, Assistant U.S. Attorney Reed Brodsky argued that many of the defense documents were not from Galleon's files, but were printed after the company shuttered to aid Rajaratnam's defense.

The prosecutor's questioning got off to a tense start, with Schutte hesitating to agree that hedge funds are competitive, try to make money, and feel intense pressure to perform well for investors.

"I don't think I said anything controversial, Mr. Schutte," Brodsky said.

Schutte replied that all industries are competitive and involve work pressures. He added that hedge funds sought "risk-adjusted returns," rather than quick money. "You can't make money every day," Schutte said.

Shifting to more specific questions, Brodsky had Schutte read the print-out dates of multiple files that the defense said reflected Galleon's research. Evidence showed that two were printed in 2010; one popped up in a search placed on Feb. 5, 2011, shortly before trial; and another was retrieved by Forensic Economics Inc., which Brodsky said Rajaratnam hired for his defense.

Schutte replied that Galleon analysts may have seen those documents earlier, but it is impossible to say for certain because Galleon did not store documents.

His testimony was briefly interrupted to accommodate the schedule of Geoffrey Canada, the president of Harlem Children's Zone, who testified as Rajaratnam's character witness.

Canada said his "dear friend" Rajaratnam made a "very generous" donation to his nonprofit educational organization out of a "genuine concern for children." He added that he went to court for Rajaratnam's arraignment and personally pledged his $100 million bail.

"I have to say, I personally don't have the $100 million to guarantee," Canada said, to laughter in the court.

He added that he believed that Rajaratnam cared about education because of his close relationship with his own children. "Raj's wish was to level the playing field," Canada said. "I never had to convince Raj."

Canada stepped down after less than 10 minutes of testimony. Rajaratnam mouthed "thank you" to him as he left the courtroom.

Schutte returned to the stand, where he fielded questions for another 30 or so minutes. He returns to the hot seat on Thursday.

If convicted, Rajaratnam faces up to 20 years in prison.

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