US issues insider dealing charges. Masters of the universe: meet the world's best-paid men. FBI widens insider trading probe. EU 'signs off' hedge fund rules. IBM man guilty of insider trading. Galleon founder pleads not guilty. Raj Rajaratnam, who is accused of insider trading, insists he is innocent. That is about to change. Detailed picture. Rampant insider trading. Fame, or infamy. Fame, or at least infamy, beckons. Published 1 March It was his best chance to deter the pervasive corruption of Wall Street.
One former prosecutor compared the financial crisis to international narcotics trafficking, and insider trading to street-level drug dealing. The trial of Raj Rajaratnam began on March 8, , in the federal courthouse at Pearl Street, in lower Manhattan.
Forty-seven conspirators, in overlapping networks of insider trading, had already been charged, and twenty-three of them had pleaded guilty.
One of the last to do so was Danielle Chiesi. By then, she was on the anti-anxiety drug Cymbalta and seeing a psychiatrist. I brought disrepute to what is an honorable profession. Within days of the arrests, Galleon had been shut down. Adam Smith, who had initially avoided arrest, started his own operation, managing the money of a Galleon investor. In December, , Smith was caught in the dragnet. Frightened, and still calculating his best position, Smith agreed to record his calls and lure a former Galleon colleague into admitting knowledge of the Cisco-Starent tip.
Having failed at entrapment, Smith proceeded to testify against Rajaratnam—the boss whose approval he had worked so assiduously to win. The choice was surprising. But Dowd was known for fighting rather than bargaining, and Rajaratnam liked that. In spite of the overwhelming evidence against him and the prospect of a twenty-five-year sentence, he never seemed to consider pleading guilty. Observers attributed this decision to the limited deal he could hope to make with prosecutors, but in fact Rajaratnam could have offered them someone who was, perhaps, even bigger than he was: Rajat Gupta, the former McKinsey head.
The prosecution was led by Jonathan Streeter, a ten-year veteran of the Southern District. Streeter, a Cleveland native, was unassuming, but, in an office of cautious colleagues, the fact that he spoke his mind and owned a speedboat made him a bit of a character. This was his first trial, but the case had already consumed almost five of his thirty-five years. On the first day of testimony, in the courtroom of Judge Richard J.
Holwell, Anil Kumar, the McKinsey consultant, walked to the witness stand, where he stood for a moment, in a dark suit and tie, and bowed his head, his hands clasped before him. He looked like a prisoner waiting to be sentenced. Rajaratnam sat not with his lawyers but, rather, on a bench behind the defense table, the shiny wave of his hair almost touching his hunched shoulders.
He was not as bulky as he looked in photographs. His lower lip jutted slightly, and he stared through rimless glasses with undisguised contempt at his former friend.
His memory was astounding, and his explanations to the jurors, whom he often addressed directly, were so smooth that they came across as almost smug. He gave crisp lectures on the difference between private-equity and hedge funds, and on the purpose of a board of directors.
Then a question about a breach of trust, or a lie, brought Kumar back to why he was in the courtroom, and his face sagged. In case the cross-examination had unsettled the jury, Streeter, in his redirect, took Kumar through the crucial events one more time. With that, Anil Kumar was excused by Judge Holwell. A verdict would not come for another eight weeks, but in a sense the trial was already over. Moreover, Rajaratnam had too much information at his disposal for any single item to account for a given trade.
The defense came close to arguing that, in the age of hedge funds and electronic communications, everything is public and nothing can be proved material—that insider trading cannot exist. As the S. Throughout the trial, John Dowd seemed like a great aging elephant, slow and ponderous but still capable of inflicting damage. He took extreme dislikes: to Kumar, whom he accused of being the biggest liar in the history of the Southern District federal courthouse; to Reed Brodsky, the prosecutor, whom he mocked as a crybaby; and to the reporters covering the trial.
This is the worst piece of whoring journalism I have read in a long time. It did not work. The jury was not impressed by the worst cross examination ever delivered. So in the style of Preet, try to smear him by working the sycophants in the back of the Courtroom. He learned from Schumer in the Senate. Preet is scared shitless he is going to lose this case so he feeds his whores at the WSJ. He sat silent and imperturbable on the bench behind the defense table for weeks while his voice echoed in the courtroom day after day, through the static of the wiretaps.
The government played forty-six tapes. Yet his every word incriminated him. One day, in the eighth-floor cafeteria, I noticed Rajaratnam standing alone by a refrigerator case, contemplating the beverage choices.
By unspoken agreement, reporters had refrained from approaching him, but it was a chance that seemed unlikely to come again. In court that day, he had been carrying a small paperback. I walked over and asked what he was reading. He smiled in a shy way that seemed self-protective. In a mere ten seconds, Rajaratnam had managed to lie. He was facing the end of his freedom, and it was a kind of cruelty to make him engage. During jury selection, Judge Holwell had passed out fifty-two questions for members of the jury pool.
Does the fact that the case involves the financial industry, Wall Street executives, hedge funds, mutual funds and the like, make it difficult for anyone to render a fair verdict? All the wiretaps had been made that year, and so the jurors heard tapes of a hedge-fund manager running his business as one investment bank after another fell. In early October, with the government scrambling to rescue the banking system, Kumar called Rajaratnam:. The wiretaps, which breached the normally soundproof walls of hedge funds, told a breathtaking tale of selfish, short-term thinking.
On the afternoon of September 23rd, Rajat Gupta, the former head of McKinsey, joined members of the Goldman Sachs board on a conference call. The conference call ended at P.
At , just two minutes before the markets closed, Rajaratnam gave an order to buy three hundred and fifty thousand shares of Goldman stock, worth forty-three million dollars.
That night, the world learned of the Buffett investment. A month later, the drill was repeated: as Goldman prepared to announce an unexpected quarterly loss, Gupta called Rajaratnam, and Rajaratnam sold all his Goldman stock before the announcement.
Two cell-phone wiretaps caught Rajaratnam telling colleagues about his Goldman tips. A few days before the trial started, Gupta was charged with insider trading, in an S. The failure to charge Gupta is a much discussed mystery, but the answer might be simple: the prosecutors, consumed with other cases and with preparation for the Rajaratnam trial, might not have realized what they had on Gupta until shortly before the proceedings began.
Gupta, through a spokesman, denied any wrongdoing. In turn, the defense subpoenaed records of government investigations of Goldman Sachs, intending to argue that Blankfein might be rewarded with softer treatment if he testified against Rajaratnam.
Streeter informed Dowd that there was no current investigation of the company or of Blankfein. Neither the government nor Blankfein need have worried. His appearance in court on March 23rd was pure celebrity spectacle, and he entered the room smiling broadly. Preet Bharara, who had regularly attended the trial, was in court that day with four of his top deputies.
After a pause, Blankfein did. Nobody is above the law, no matter how good their reputation is. The stock market is supposed to be an even playing field.
The jury deliberations lasted twelve days—longer than almost anyone expected. But on the morning of May 11th the jurors pronounced Rajaratnam guilty on all fourteen counts of securities fraud and conspiracy to commit securities fraud. The room fell silent. Trials are excruciatingly slow, but when the end comes, it comes with devastating speed. His stoicism was impressive. But when he turned to leave the courtroom his eyes were filmy. Sentencing was scheduled for July 29th.
The defense team vowed to appeal. The files of the Galleon case are littered with the names of people implicated in insider trading—Rengan Rajaratnam and Kamal Ahmed among them—who have not been charged and perhaps never will be charged, in some cases simply because the government lacks the resources to try them. One obscure document from the case is the F. Capital, one of the largest hedge funds. Lee told the agents that S. Lee was attempting to tell Chiesi that S.
His lawyer, John Dowd, presented the court with dozens of e-mails, trading records and excerpts from trial testimony to argue that his client had made trades based on public reports, not on insider tip-offs. Prosecutors have called the case the "largest hedge fund insider trading case in history". So far more than two dozen people have been criminally or civilly charged in the case.
Most of them have pleaded guilty. Mr Rajaratnam faces 25 years in prison if found guilty. Ex-Intel man 'tipped' Rajaratnam.
The man at the centre of Galleon hedge fund trial.
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