Galleon's Strategy Was To Have "Two Torpedoes In The Water"


Photo: Wikipedia

In the witness stand, former Galleon portfolio manager Adam Smith told jurors about the world inside Raj Rajaratnam’s hedge fund.He testified that in addition to legitimate research, traders and analysts were encouraged to find out confidential numbers — concrete figures connected to revenue, or earnings, or impending deal pricings — before they were released publicly.

According to Reuters, Smith said,

[C]ombining a tidbit of confidential information on a company with solid research on its sector was often called “having two torpedoes in the water.”

“If one of them misses, the other is likely to hit.”

For example, after Smith was hired by Galleon in 2002, he developed a relationship with an executive called Jason Lin, who worked for one of the tech firms he covered, Intersil.

According to Dealbook, Smith testified that,

Once a quarter, [he] would travel to Taiwan to meet with Mr. Lin. They initially discussed industry issues and “more qualitative types of information,” said Mr. Smith.

But over time… he asked Mr. Lin to be more specific. “There did come a time when he was able to give me Intersil’s quarterly revenue numbers.”

Those precise revenue numbers were the “edge” that Rajaratnam was looking for, according to Smith. “Getting the number” allowed Galleon to trade on stock ahead of news that, when released, would send the share price soaring or tumbling.

“Research is sort of doing your homework ahead of time,”  Smith said. “Getting the number is more like cheating on a test … I knew the answer ahead of time.”

Listen to Raj talking to one of his analysts about “getting the number” >

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.