No Middle Ground as Rajaratnam Trial Closes

     MANHATTAN (CN) – In closing arguments Wednesday, prosecutors and defense attorneys in the case of billionaire Galleon hedge fund co-founder Raj Rajaratnam, the alleged ringleader the largest inside-trading scheme in history, each accused the other of not living in reality.

     Assistant U.S. Attorney Reed Brodsky said the government “overwhelmingly demonstrated” – using dozens of wiretaps, three cooperating witnesses and reams of e-mails and other documentation – that Rajaratnam placed illegal trades, then tried to mislead government investigators.
     He added that Rajaratnam’s “highly compensated” witnesses earned millions to testify that his trades were legitimate, but that their findings were “disconnected from reality.”
     Defense attorney John Dowd mocked prosecutors for living in an “imaginary world” based on a “fictional idea that information can never become public until a company issues a press release.”
     Throughout trial, the defense has insisted that the tips that Rajaratnam solicited and received were widely printed in newspapers and analyst reports.
     Prosecutors have dismissed most of them as “rumors” and “speculation,” but Dowd said they are often accurate.
     “If the information’s correct, it’s not rumor. It’s not speculation. It’s news,” Dowd said, adding, “If it’s public, you must acquit.”
     The parties even disagree on whether Rajaratnam made or lost money on the alleged scheme.
     The government said Rajaratnam made $63 million on illegal trades.
     University of Rochester Professor Gregg Jarrell, a defense witness, testified that Rajaratnam actually lost millions because the government did not tally his $67 million loss on the stock of Advanced Micro Devices (AMD), a computer chip-maker, after the company merged with another one on Oct. 7, 2008.
     Prosecutors countered that Rajaratnam’s AMD tip was accurate, his supposed $67 million loss was exaggerated, and his alleged loss came from the U.S. economy’s freefall that month.
     “It just so happened that AMD announced the deal on one of the greatest financial collapses in U.S. history,” Brodsky said.
     The government does not need to prove Rajaratnam’s trades were successful to prove they were illegal, Brodsky added.
     He said that an insider’s tip is more reliable than news articles and analyst reports, which often rely on anonymous sources, reveal vague information and conflict with other outlets.
     Far from relying on newspapers, Rajaratnam and his brother saw reportage as a threat to their inside information, Brodsky said.
     After the Wall Street Journal printed an article about one such investment, Rengan Rajaratnam exclaimed in a tapped call, “Oh, dude, we’re fucked.”
     In another call with Rengan, Raj Rajaratnam said that he would be able to start “playing ball” with a McKinsey employee “if he is a little dirty.”
     Rengan replied that they could count on the McKinsey employee because he had mentioned that “all my best ideas are inside information.”
     “Scumbag, everyone’s a scumbag,” Rengan said.
     In the courtroom Wednesday, the speakers playing the clip pointed directly into the jury box.
     “These calls have stripped away the veil of legitimacy,” Brodsky said. He added that defense attorneys provided “no rational explanation” for Rajaratnam receiving three coded emails marked “Eyes” (an apparent pun on the first initials of Integrated Circuit Systems and Integrated Device Technology).
     In the first day of the defense’s summation, Dowd did not directly confront these wiretaps and e-mails, and instead attempted to blast the credibility of the government’s witnesses.
     Dowd said that jurors should be “offended” by the government’s “smearing” former Galleon employee Richard Schutte by suggesting that Rajaratnam’s $25 million investment in his new hedge fund compromised his testimony.
Schutte, he said, was an “honest man,” in contrast to cooperating witnesses Anil Kumar, Rajiv Goel and Adam Smith, whose testimony comprises three-fifths of the government’s charges against his client.
     Brodsky said that, using that logic, the government could never call a cooperating witness.
     “Law-abiding citizens can’t tell us what happened because they were not a part of it,” Brodsky said.
     The other charges relate to Danielle Chiesi and Roomy Khan, who both pleaded guilty to participating in the scheme.
     Brodsky relied on Chiesi, who infamously worried in a wiretap that a leak of her inside trading would turn her into “Martha fucking Stewart,” to show that Rajaratnam engaged in a cover-up to keep his trades from being detected.
     In one wiretapped conversation, he told Chiesi, “You should buy and sell, buy and sell, you know,” allegedly to create an alibi, and keep “radio silence” about confidential information.
     Brodsky intended to show that Rajaratnam’s trades were too convenient to be legitimate through Khan, a woman who was never implicated by wiretap. Phone records prove that Khan bought “shares on steroids” for Hilton when she was on a phone with a tipster, Brodsky said.
     After she called Rajaratnam, he bought 400,000 shares in the company, in which he had never invested before, Brodsky said.
     Rajaratnam allegedly made $4.9 million on that tip alone.
     Dowd has not yet challenged the evidence relating directly to Khan and Chiesi in his summations, which continue on Thursday.
     The government’s rebuttal summation will follow.

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