Adam Smith Testifies That Raj Told Him How To Insider Trade At Galleon And How To Make A Fake Email Trail

In the opening statements of the Raj Rajaratnam insider trading trial, we heard about the Galleon chief’s alleged “fake email trails.”

Yesterday, Raj’s former portfolio manager Adam Smith, told jurors about the myriad ways Galleon hid trades made based on inside information.

Galleon employees engineered fake email trails to “justify transactions,” he explained, in addition to “manufacturing unneeded research, avoiding unusual trading patterns, especially in options, and communicating with overseas analysts by fax instead of e-mail,” Bloomberg reported.

Smith said he’d thrown out a notebook and his personal laptop on the day Raj was arrested. One week later, Smith says Raj asked him to “take care of” a fax that contained “sensitive information” so the tossed it as well.

39-year-old Smith, who has already plead guilty to insider trading, also described Galleon trading patterns, and Raj’s early education of analysts, on those patterns.

When Smith began work as an analyst at the hedge fund in 2002, he says Raj took him aside and described how Galleon trading worked. “If Galleon owned 100,000 shares of a stock expected to rise in two days, traders would sell 25,000 shares that afternoon, buy 50,000 shares the next morning and sell 25,000 later the same day,” he explained.

“One strategy was to sell small quantities of stock that the firm expected to rise in coming days,” Smith said. “The idea was to put into a record, or show a pattern, of buying and selling — selling being inconsistent [with insider trading]. We could say we made sales beforehand.”

Raj explains how to create a fake email chain in 3 easy steps >

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