MANHATTAN (CN) – As the fate of billionaire Raj Rajaratnam still remains uncertain in day 5 of deliberations in an insider-trading trial, jurors appear to be taking seriously his “mosaic” defense, or the idea that he traded based on hundreds of pieces of publicly available information rather than relatively few inside tips.
To find – or even consider – Rajaratnam’s innocence, jurors must believe that the 40-plus wiretaps that often show him giving and receiving information about mergers, acquisitions and quarterly earnings do not represent inside tips, but small cuttings that make up his larger picture of the stock market.
This is what is meant by a mosaic, a concept parsed by the press, and a word used by defense attorney John Dowd multiple times.
Dowd promised to show jurors the “complete picture” in opening arguments of the seven-week trial, and he used the phrase again several times in summations after more than seven weeks of trial
Jurors are still closely examining that picture of the Galleon hedge fund co-founder.
But the so-called mosaic defense, often depicted as a novel legal strategy in coverage of the Rajaratnam defense, emerged decades before he went to trial.
“Most lawyers in this area believe it is the best, most effective way to counter a charge of learning secret, confidential information to make trades,” Pace University Professor Bennett L. Gershman told Courthouse News in a phone interview.
Gershman, a former prosecutor and defense attorney who now teaches criminal procedure, says it has been used for “at least 15 to 20 years.”
Mosaic defense may also have figured prominently in the 1985 inside-trading case against former Wall Street Journal reporter R. Foster Winans, though it did not ultimately pan out for the journalist. Winans was convicted of trading on information he later published in his column “Heard on the Street,” and that conviction was affirmed by a rare 4-4 deadlocked vote in the Supreme Court.
Court documents show that, more recently, hedge fund manager Donald Longueil had planned to use a mosaic defense in an upcoming inside-trading trial. Instead he pleaded guilty to securities fraud on Thursday.
Longueil, now facing 20 years, had been indicted along with portfolio manager Samir Barai and two others in February.
The government says it intercepted a Blackberry message that Barai sent to an alleged co-conspirator in November 2008, saying that there were “just not enough clues to hold something on us” because “[w]e all use mosaic theory.”
“So we’re ok,” Barai concluded.
Charges against Barai are still pending, but his three co-defendants have all pleaded guilty.
Rajaratnam was never caught planning a mosaic-theory defense.
But prosecutors say that the 40-plus wiretaps played at trial show him trying to elude investigators by creating an “e-mail trail,” keeping a “corporate record,” and telling colleagues to stay “radio silent.”
Professor Gershman said some of these tapes have been “pretty damning.”
“You have a lot of sinister conversations suggesting nonpublic information, but sometimes it’s a very tough line,” he added.
Ongoing jury deliberations are still a bit puzzling, Gershman said.
“I thought the verdict would come some time in the middle of this week,” he said. “Obviously, there’s disagreement there.”
Many of the people with whom Rajaratnam is recorded speaking have already admitted to securities fraud, and three of them testified against Rajaratnam at trial.
More than 20 of the 26 people investigated in the scheme have pleaded guilty, and many are awaiting sentencing
If convicted, Rajaratnam, their alleged ringleader, can face up to 25 years in prison, but he may be acquitted if the jury sees the picture the defense has painstakingly pieced together.