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Adam Smith began his testimony in the Raj Rajaratnam trial today.He’s the first former Galleon employee to take the stand against his old boss.
In the morning session, Smith told jurors that Galleon “used insider tips as an “edge” in a strategy to make money” when company revenue details differed from expectations on Wall Street, Bloomberg reported.
Smith, who was a portfolio manager at the hedge fund, described pressure to get that “edge.”
“Getting an edge is the key component to arbitraging consensus,” Smith said, according to the WSJ.
Smith is wearing glasses and a pale blue shirt in court today, according to the Journal.
He talked about the legitimate research that occurred at Galleon, but also testified that traders were encouraged to ‘get a number,’ — specific figures connected to earnings or deal pricings, for example.
“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.”
Smith’s task, like others, was “getting the number.” That is, getting a hold of concrete revenue figures before they they were publicly released by the company. He said he was able to garner those numbers from insiders at Intel and another chipmaker Intersil.
The government has stressed throughout the trial that information gathered from inside sources is far more valuable to a hedge fund, than speculation in the media or on Wall Street. The defence argues that Raj made his trades based on mosaic research, not tips from company insiders.
According to Reuters, Smith testified that,
[H]e obtained non-public information from an engineer at chipmaker Intersil Corp in Taipei, Taiwan. Smith said the engineer shared inside information on the company’s earnings with Smith starting in 2004.
“One time I asked if he could be more specific about his company’s performance and there came a time when he could give me an actual numerical value,” Smith said.
Smith later testified: “Each time I would receive the information, I would pass it on to Raj.”
Smith also revealed that even after he left Galleon, Raj’s arrest did not deter his regular methods, and he continued to trade on inside information, Bloomberg reported.