NEW YORK (By Grant McCool) - A former Galleon Group trader contends he saw a brother of accused hedge fund founder Raj Rajaratnam remove notebooks from their office on the day of Rajaratnam's October 2009 arrest, according to trial documents.
The claim, from ex-Galleon employee and government witness Adam Smith, emerged in court filings in the biggest Wall Street insider trading case in a generation, with the defense asking the judge to bar that portion of his expected testimony to the jury because it was prejudicial.
"I'm leaning somewhat toward the defense position," U.S. District Judge Richard Holwell said, but he reserved final decision until Tuesday.
A federal prosecutor told the judge Smith would be called to begin his testimony on Tuesday.
The trial resumed on Monday with a different government witness acknowledging that some information he says he gave Rajaratnam may have been wrong or subject to media or analysts' speculation.
"Whatever I had I passed on to him," former Intel Corp executive Rajiv Goel, 52, told defense lawyer Terence Lynam about the chipmaker's earnings and deal information in 2007 and 2008.
"I don't know whether it was right or not."
Sri Lankan-born Rajaratnam faces criminal charges of conspiracy and securities fraud. He has vowed to clear his name at trial, arguing his trades were based on research or publicly available information.
The Manhattan federal court trial began on March 8 and could last two months. Goel and Smith are among 19 people who pleaded guilty in the Galleon case.
Smith gave an interview to the FBI on February 1 in which he discussed documents taken from the Galleon office on the day Rajaratnam was arrested, according to court papers.
Smith claimed in the interview that Rengan Rajaratnam spoke to him about the removal of the documents some time later "in a manner in which Smith interpreted to mean that 'Rengan wanted to confirm (Smith) was not going to say anything about the notebooks,'" the court filings say.
Prosecutors argued that "Smith's observations are being offered to prove the existence of the charged conspiracy."
Rengan Rajaratnam, also a fund manager, has been described by prosecutors as an unindicted co-conspirator.
Raj Rajaratnam's lawyers said the documents retrieved by Rengan Rajaratnam reflected Raj Rajaratnam's "charitable donations and real property holdings on the instructions of counsel" for a bail hearing after his arrest.
Rajaratnam, 53, is accused of getting inside stock tips from highly placed friends and associates about companies, including Google Inc, Intel Corp and Goldman Sachs Group, between 2003 and 2009.
On Monday, prosecutors also called Xilinx Inc. executive Rick Muscha to the witness stand. Prosecutors accuse Rajaratnam of conspiring with friend Kris Chellam to obtain non-public information about Xilinx earnings.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.
(Reporting by Grant McCool; editing by Andre Grenon and Matthew Lewis)
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