MANHATTAN (CN) - Federal prosecutors kicked off witness testimony in the insider-trading trial of Raj Rajaratnam, the billionaire co-founder of the Galleon hedge fund, on Thursday with the centerpiece of their evidence: wiretap recordings of Rajaratnam's cell phone.
Rajaratnam allegedly made $45 million through Galleon in a massive inside-trading scheme, trumpeted by prosecutors as the largest in history, which has resulted in guilty pleas from more than 15 alleged associates and tipsters.
During opening statements on Wednesday, a prosecutor vowed that the jury "will hear" FBI-recorded calls that proved Rajaratnam's penchant for insider trading, and the government wasted no time in presenting the audio evidence.
FBI Special Agent Diane Wehner, the first witness to take the stand, verified the authenticity of stacks of discs holding more than 3,900 sessions of calls, voicemails and text messages surveiled on Rajaratnam's cell phone.
In one tape, Galleon portfolio manager Adam Smith, who pleaded guilty to fraud, said that the stock market was treating him "like a baby treats a diaper."
Rajaratnam can be heard giggling in response to Smith's analogy.
According to the government's interpretation of that call, recorded on the afternoon of May 1, 2008, Smith and Rajaratnam are discussing the expected acquisition of Vishay, a private equity, by another company. The government believes that Rajaratnam received an inside tip about the anticipated deal.
Defense attorney Terence Lynam said in cross-examination that the audio snippet began more than two minutes into the call that had been transferred from a Galleon trader Ian Horowitz.
Lynam had the court play the start of the call and denied that the portion highlighted by the government showed evidence of insider trading. The government's transcript showed Smith saying the deal had been "reported yesterday," Lynam said.
Another Oct. 7, 2008, recorded call between Rajaratnam and Rajiv Goel, a former Intel executive who pleaded guilty to fraud, involves the anticipated stock-market closing of PeopleSupport, a customer-management company.
In the recording, Rajaratnam says he learned through a Galleon member on the PeopleSupport board that $41 million will be put in an escrow account, and a deal would close before Oct. 31, 2008.
"We know because, ah, one of our guys is on the board," Rajaratnam said.
Rajaratnam goes on to state that he could not buy any more PeopleSupport stock because he already owned 25 percent of the company.
"I thought it was an opportunity for me to buy for you," Rajaratnam tells Goel in the recording. Agent Wehner described Goel as Rajaratnam's "close friend."
In cross-examinations, Lyman grilled Wehner about how much of the information on the tapes could be found in press releases and other public information.
Wehner replied that the question was outside her expertise, but she testified at length about FBI procedures in acquiring wiretap authorization and monitoring calls. She said the FBI monitored Rajaratnam's cell phone, but not his landlines at work and home, seven days a week between 6 a.m. and midnight.
Anil Kumar, a former director of the McKinsey consultancy, began testifying this afternoon. During Wehner's testimony earlier in the day, the FBI agent said that Kumar had gone to the Wharton School with Rajaratnam and was "somewhere between an acquaintance and a friend" to the billionaire. In January, Kumar before pleaded guilty to fraud and agreed to be a cooperating witness for the government.
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