Today in the Raj trial, jurors heard wiretapped conversations in which Raj Rajaratnam discussed inside information he’d learned about Goldman Sachs in 2008, as well as a recorded conversation between government witness Adam Smith and then-Galleon employee Ian Horowitz.
Adam Smith, the former Galleon portfolio manager who alleges that Raj encouraged garnering non-public, material information from sources within public companies, continued to testify today, and the recordings were played between his testimony.
During cross-examination today, Raj’s defence accused Smith of “fabricating his illegal conduct at Galleon in order to secure a lesser sentence by helping them get “the big fish” — Mr. Rajaratnam,” according to Dealbook.
This time, it was the defence’s turn to play a wiretapped conversation for the jurors. On the call, Smith — who was already a cooperating witness at the time — tried to get Horowitz to admit that Galleon trades on insider information.
According to Dealbook:
Mr. Smith, who testified that the F.B.I. had instructed him to lie in order to elicit incriminating information, said on the call that he believed Galleon’s trading was legitimate.
“You want the jury to believe you were lying then, but telling the truth now?” asked Terence J. Lynam, a lawyer for Mr. Rajaratnam.
“Yes,” Mr. Smith replied.
The Goldman Calls
At 12:12 pm on October 24, Raj called a Galleon manager based in Singapore, David Lau. The day before, Goldman Sachs called a board meeting to tell the members that for the first time in the firm’s history, the bank was down for the quarter. Consensus on Wall Street was that the bank would report a profit, and a good one.
Prosecutors allege that the source of the information was former Goldman board member, Rajat Gupta, who called Raj 23 seconds after putting down the phone after the conference call. The allegation is the reason the government called Lloyd Blankfein to testify last week. Blankfein confirmed that if Gupta had revealed material information he learned during a board meeting, he had breached confidentially agreements.
“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” Raj told Lau. “The Street has them making $2.50.”
The conversation continues:
RR: You know. Yeah. Now I can get that number, you know, one, they don’t report until December, they, I think their quarter ends in November, but… one more, but you know they have these huge marks in ICBC and all that stuff right. That us is getting absolutely clobbered,” Raj said.
RR: So what he was telling me was that uh, Goldman, the quarter’s pretty bad. They have zero revenues because their trading revenues are offset by asset losses, and to date they have lost $2 per share.
Raj informed Lau, “I don’t think that’s built into Goldman Sachs stock price.”
When markets opened the following day, Raj liquidated his Goldman position; the bank subsequently announced a $2.12 billion loss.
One month earlier, Raj revealed the $5 billion Berkshire Hathaway investment to Horowitz.
RR: So, big drama yesterday
IH: Yeah, I, I, I heard. I heard a little, you mean the last three minutes of the day?
RR: No, I got a call at 3:58, right?
RR: Saying something good might happen to Goldman. Right?
“Rajaratnam allegedly placed an order for millions of dollars in Goldman stock in the two minutes before stock trading closed in New York on Sept. 23, prosecutors said,” according to the WSJ. The Berkshire Hathaway injection was announced after the markets closed. Raj bought $43 million worth of shares beforehand, prosecutors say, and made $1 million in profit from the trade.