Photo: Katya Wachtel for Business Insider
With Anil Kumar’s testimony wrapping up yesterday, it was the government’s turn to go on the offensive again.This round it’s Rajiv Goel VS Raj Rajaratnam.
Goel is a former Intel worker and was Raj’s longtime friend — the two are Wharton alum and that’s where they buddied up for the first time.
Like Kumar, he’s the prosecution’s witness — he’s already pleaded guilty to insider trading over tips he passed to Raj about about Intel’s negotiations with Clearwire.
The government this morning has been running jurors through confidentiality agreements and insider trading agreements at Intel and People Support — all of which were a lead up to when Goel will take the stand.
Jurors were first introduced to Goel last week, when they heard a 2008 conversation between Raj and Goel discussing the trading of shares of the outsourcing company, PeopleSupport.
On that call, Raj tells Goel that the stock price of PeopleSupport is down based on a press release earlier that morning — a release that concerned the firm’s merger with Indian company Essar, and how it had hit a hurdle.
Then Raj drops a secret: he’s certain the stock is about to surge despite the bad news.
“We know because one of our guys is on the board,” Raj says on tape. “They put $41 million in escrow. It’s a $250 million deal.”
The guy on the board about whom Raj is talking is Krish Panu.
In a 2008 agreement between PeopleSupport and Galleon, the former allowed the hedge fund a designee on its board, in return for that board member supporting all of PeopleSupport’s nominees to the board.
Panu was strictly forbidden from disclosing private company information to Galleon unless absolutely necessary. If he did, Galleon was prohibited from disclosing that information to anyone else. And there were also rigid restrictions on trading securities based on that information.
Panu has been given a lot of airtime this morning in the U.S District Courthouse.
- The government argues that Raj relayed material, non-public information to Rajiv Goel about People Support’s “$250 million deal,” via Krish Panu, who, being on the board, was privy to that confidential information.
- Raj also passed along non-public information about PeopleSupport’s top-secret deal with Essar to Rajiv Goel.
A few notes on the Essar deal. It was top-secret; Essar was only referred to in documents about the acquisition as “Easter.” Another firm that was considering an merger with PeopleSupport, was referred to as “Ivy.” Essar’s chairman and vice-chairman were two brothers: Shashi and Ravi Ruia.
On July 30th, 2008, Raj and Goel spoke at 2:02 pm.
After the two discussed a dinner (or perhaps lunch) date scheduled for that weekend, Raj casually dropped a juicy piece of news:
Rajiv Goel: So next time we do Sunday at our house for dinner, or, or lunch.
RR: Yeah, yeah. So the Ruias made a firm bid now.
RR: In the amount, $12.25
RG: Oh wonderful, wonderful. Thanks.
According to the government, no-one knew that the deal had been confirmed. In fact, really, the only people that should have known were PeopleSupport’s board members, who were present for a July 28 meeting at which the company’s chief, Lance Rosenzweig, announced 2 things. First, that the following “Monday was targeted as the sign/announce date” for the deal. And second, that the price would be at $12.25 per share.
Just before lunch in the witness stand, Lance Rosenzweig testified that no-one should have relayed that information as per the firm’s insider trading agreement. So while it conceivable that Panu would tell Raj information about the deal as a Galleon party, there was no reason for Raj to tell Rajiv Goel. It violated a host of internal policies as well as legal ones, the prosecution argues.
“The good news, Raj, is they’re going to generate free cash flow of $30 million this year,” Panu also told Raj in May of ’08, according to a wiretapped conversation. Again, this information was not public.
Earlier this morning, a former Intel IR representative, Alexander Lenke, testified about Intel’s strict non-disclosure policies. Intel had rigid guidelines about disclosing non-public material information to investors and analysts, and there were only a select few authorised to even talk about the company in a general manner, to either.
Rajiv Goel was categorically not one of them, Lenke testified; Goel was never authorised to talk about Intel business in public.
We’re inside the courtroom right now. Check back here for updates on what happened in the Raj trial later.