Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Friday, April 19, 2024 | Back issues
Courthouse News Service Courthouse News Service

Hedge Fund Indictments Feature|Colorful Transcripts of Wiretaps

MANHATTAN (CN) - Billionaire hedge fund trader Raj Rajaratnam milked friends and business acquaintances for inside information on deals from which he and his firm Galleon Management made tens of millions of dollars, federal prosecutors say. A second indictment accuses Danielle Chiesi and Mark Kurland, of New Castle Funds, and IBM senior vice president Robert Moffatt of related inside trading. Transcripts from wiretaps in this complaint are particularly colorful.

Rajaratnam and codefendants Rajiv Goel and Anil Kumar are accused of conspiring to trade more than 6 million shares of Advanced Micro Devices, Hilton, Google and other companies.

This 34-page indictment too includes wiretap transcripts. They pale, however, before the transcripts in the Chiesi complaint, which often appear to have come from a grade B movie.

Prosecutors say they used months of wiretaps and secret cooperating witnesses to expose the largest insider-trading ring in history.

According to the transcripts, Chiesi, a trader with the New Castle division of Bear Stearns Asset Management, said that without the insider information she wouldn't have touched stocks belonging to troubled Advanced Micro Devices with "a fucking 10 foot pole."

The transcripts appear to show that Chiesi knew the scheme was illegal because she constantly emphasized the importance of speaking on secure lines and not using e-mail.

"You put me in jail if you talk," according to the transcript of one conversation. "I'm dead if this leaks. I really am ... and my career is over. I'll be like Martha fucking Stewart."

In an affidavit, FBI Special Agent Diane Wehner lays out a series of nonpublic deals that tech company officials allegedly leaked to Chiesi, who shared the information with Kurland. The transcripts do not indicate what Moffat, the IBM executive got in exchange for information he allegedly leaked to Chiesi about an AMD deal to which he was privy because the company needed to license IBM technology.

Chiesi had New Castle buy 127,600 shares of AMD, worth $2.3 billion, in the weeks before the announcement that the tech company would spin off its manufacturing division with financing help from Abu Dhabi investors.

Chiesi allegedly assured Kurland, a former senior managing director of Bear Stearns, that Moffat would let her know when the deal would go down. The transcript from one call reports that she tells him she will see Moffat "on fucking Sunday at my mom's house."

AMD shares went up by 25 percent after it announced the spinoff, though the affidavit says it was not actually a profitable deal because the sour economy had caused shares to drop 28 percent while Chiesi was buying up her stake.

Chiesi worried that if AMD stock increased by 30 percent she "could get fucked" because her profitable trading would attract attention from regulators. Hedge fund mogul Raj Rajaratnam advised her to establish a trading pattern and sell off half the AMD stock before the "unbelievable" announcement, according to the complaint.

Calls intercepted from July to September 2008 allegedly show Rajaratnam and Chiesi speaking repeatedly about using confidential information to trade shares of tech companies that include IBM, Akami and Sun Microsystems.

Moffat allegedly tipped Chiesi to IBM's unannounced earnings reports and its plan to acquire Sun - two events that caused stocks to jump and produce $1.4 for New Castle accounts. Chiesi earned more than $2.4 million from the inside trading, according to the complaint.

In the Rajaratnam complaint, codefendant Kumar is a director at McKinsey & Co.; Goel is a managing director at Intel Capital, an Intel subsidiary.

The SEC filed a separate complaint against all six individuals, Galleon Management and New Castle Funds.

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.