Rajaratnam 'Gets Tomorrow's Business News Today,' Prosecutors Say

Accused Hedge Funder 'Gets Tomorrow's Business News Today,' Prosecutors Say

NEW YORK, March 9 (Reuters) - A corrupt man or a legitimate stock researcher?
Prosecution and defense lawyers painted starkly different portraits of hedge fund manager Raj Rajaratnam at the start of the biggest Wall Street insider trading case in a generation.
Rajaratnam, a Sri Lankan-born, one-time billionaire, sat impassively and wrote occasional notes on a legal pad during more than two hours of opening statements in his high-stakes trial in Manhattan federal court.

"Greed and corruption. This is a case about that man right there, Raj Rajaratnam, using stolen business information to make tens of millions of dollars," prosecutor Jonathan Streeter said, pointing at Rajaratnam and then slowly telling the jury how the government will show he cheated and tried to cover up the trail.

Defense lawyer John Dowd, mostly reading for 90 minutes from a prepared statement, offered a host of alternative reasons for Rajaratnam's alleged illegal information gathering and trades. He said "the government has it wrong" and insisted the Galleon Group founder engaged in legal stock research and analysis that made him successful.

Dowd attacked government allegations that former Goldman Sachs director Rajat Gupta tipped Rajaratnam about a $5 billion confidence-boosting investment in Goldman by Warren Buffett's Berkshire Hathaway at the height of the 2008 financial crisis and on the Wall Street bank's earnings.

"Any information that Raj received from Gupta in October 2008 was immaterial as there was a month left in the quarter," a slide shown by Dowd read. Dowd was responding to the allegation that Rajaratnam was given a tip about Goldman's earnings.

The government accuses Rajaratnam, the central figure in a vast insider trading probe that shook up hedge funds, of reaping $45 million in illegal profit between 2003 and March 2009. The U.S. Justice Department has made insider trading probes into the secretive $1.9 trillion hedge fund industry a priority, with Rajaratnam's prosecution its signature case.

The defense team faces hundreds of secretly recorded phone calls in evidence and former friends or employees who will testify for the prosecution during the two month long trial.

"SAVE THEIR SKINS"

Streeter said former Rajaratnam friends and business associates Anil Kumar, formerly of McKinsey & Co and former Intel executive Rajiv Goel would testify that they gave the fund manager company secrets. Former Galleon employee Adam Smith, who has also pleaded guilty in the case, will testify.

Dowd told jurors the witnesses agreed to testify "to save their skins."

In the wood-paneled courtroom, both lawyers stood at a podium when it was their turn to address the jury. Document boxes and files were piled in one corner, under the defense table and next to the prosecutors' desk.

Streeter said Rajaratnam obtained an illegal advantage over ordinary investors. "He exploited a corrupt network of people to obtain information" about company secrets such as earnings and mergers, the prosecutor said.

He said Rajaratnam "gets tomorrow's business news today."

Rajaratnam attended the trial with no one except his lawyers, unlike many defendants who have family or friends with them.

Rajaratnam's lawyers contend that the government has significantly broadened its definition of insider trading.

"There is a real world context in which law abiding professionals discuss stocks and trades," Dowd told the jury of 12 and six alternates. "In the real world people are discussing stocks. It is legal and it is good for all of us."

THROWBACK TO THE '80s

Not since the mid-1980s has a Wall Street insider trading case grabbed such wide public attention. Then, speculator Ivan Boesky, Drexel Burnham Lambert and its junk bond chief, Michael Milken, were prosecution targets.

Rajaratnam faces up to 20 years in prison if convicted of the most serious charge of securities fraud.

Since arresting Rajaratnam in October 2009 and announcing criminal charges against 26 former traders, executives and lawyers, authorities have pressed on with what they call the biggest ever hedge fund insider trading probe.

Nineteen people have pleaded guilty in the case. It stands apart from past insider trading investigations because of the government's wide-scale use of phone taps.

The jurors include a nurse, a graphic artist and a city transportation department employee.
The case is USA v Raj Rajaratnam, U.S. District Court for the Southern District of New York, No. 09-01184. (Additional reporting by Basil Katz, editing by Andrew Marshall, Dave Zimmerman, Gary Hill, Bernard Orr and Carol Bishopric)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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