MANHATTAN (CN) – Opening a trial against the Galleon co-founder accused of making $45 million through insider trading, prosecutors were quick to say that the case’s background is marked by “greed and corruption.” Attorneys for billionaire Raj Rajaratnam countered that their client had based each of his trades on publicly available reports.
Assistant U.S. Attorney Jonathan Streeter did not put much stock in the hedge fund executive’s research. “At Galleon, people did their homework, but they cheated, too,” Streeter said.
Defense attorney John Dowd, who said he was “pleased and honored” to represent Rajaratnam, told jurors that the government did not do its “homework.” He argued that the so-called inside information was publicly available before Rajaratnam had placed any of the trades in question.
Rajaratnam is accused of making $45 million through Galleon in a massive inside-trading scheme, labeled by prosecutors as the largest in history, which has resulted in guilty pleas from more than 15 alleged associates and tipsters.
In both sides’ opening arguments, attorneys focused on the cooperating witnesses who admitted to fraud. They discussed wiretapped conversations between Rajaratnam and those witnesses, and specific details of the alleged insider-trading scheme.
Streeter said that Rajaratnam built “a corrupt network of people” to get “secret information” about major banks and corporations, such as Goldman Sachs, Google, Hilton, eBay, Samsung, Blackstone and Advanced Micro Devices.
As a highly successful individual who graduated from the University of Pennsylvania’s prestigious Wharton School, Rajaratnam knew that the information that he allegedly sought was illegal, Streeter continued. What Rajaratnam didn’t know was that the FBI was listening, Streeter added.
When he learned he was being investigated, Rajaratnam started using a prepaid cell phone, Streeter said.
Rajaratnam’s lawyer called that allegation a “complete falsehood” that was “made up” by a witness.
The prosecutor told jurors that he planned to play several recordings of Rajaratnam during the trial. One such recording captures Rajaratnam telling consultant Anil Kumar: “Be radio silent. I get shit from a lot of companies.”
Dowd, the defense attorney, tried to neutralize the remark. “Distasteful language is not evidence of a crime,” Dowd said. He asserted that the “snippets” of conversations the government collected were taken out of context.
Profane language captured by the government’s secret wiretaps has captured public interest since the indictments were made public. In one wiretapped conversation, Danielle Chiesi, who pleaded guilty to insider trading in January, said that a disclosure of her misdeeds could turn her into “Martha fucking Stewart.”
Chiesi will not be testifying for the government, but Streeter referenced evidence the government collected from her throughout his opening remarks.
Mocking Chiesi as a “gossip” and self-promoter, Dowd vigorously attacked the credibility of the cooperating witnesses, saying that the government kept them on a “leash” with potential 25-year sentences for the crimes they committed.
In an opening statement that lasted longer than 90 minutes, Dowd projected a slideshow of the many companies that prosecutors have linked to Rajaratnam’s allegedly illegal trades. Dowd said that the alleged tips were actually public knowledge from newspaper accounts, official statements and analyst reports.
“If the information is public, there is no case here,” Dowd said. “It’s over,”
Streeter said the “very well-timed trades” did not just come from good research. Five minutes after finishing a phone call at 3:53 p.m., Rajaratnam placed a $43 million order on Goldman Sachs stock at the height of the financial crisis, Streeter said.
The government says he received word of a $5 million investment by Warren Buffett. A taped conversation captured Rajaratnam saying that he knew, before the stock exchange closed that day, that “something good is going to happen for Goldman,” Streeter said.
Dowd countered that the good news was not a tip about Buffett, but an analyst report about the likely passage of the government’s Troubled Asset Relief Program, which would flush Goldman Sachs with $10 billion.
(Goldman Sachs CEO Lloyd Blankfein is expected to testify in Rajaratnam’s trial.)
Streeter said that Rajaratnam tried to cover up his alleged abuses by making them appear above board. Wiretaps recorded Rajaratnam telling witnesses to protect themselves, be careful and create an “e-mail trail” to make the transactions look legitimate, Streeter said.
Dowd said that the inside trading represents only 1 percent of Rajaratnam’s business that often lost money, but Streeter said its success or failure does not matter.
“Insider trading is insider trading, even if it doesn’t work every time,” Streeter said.
Witness testimony begins Thursday morning.