The instructions Judge Holwell gave the jury today at the Raj trial will make it difficult for the jury to convict him of ALL charges.(The first set of charges are related to insider trading and the second set are related to conspiring to insider trade.)
The instructions to the jury basically just tell the jury how to judge the case.
In this case, for example, it sounds like if the jury convicts Raj on the charge of insider trading, they must believe that his tippers are guilty of breaching the trust of company X.
Both sides argued heavily over how the instructions, among other things, would be presented to the jury, and now it’s obvious why.
The instructions are pretty much a loose sketch of how to define insider trading. And they reveal a lot about the shape of the case, and about what each side will argue is and isn’t insider trading.
Of course, the Judge said that these instructions about the charges aren’t the be all and end all. Holwell said he’ll give more detailed and thorough instructions at the end of the trial, and that those supersede the ones he gave today. But if the instructions don’t change, then in order to convict Raj on all charges, the prosecution will have to prove all of the things listed below.
(The prosecution will have to prove each one. The defence doesn’t have to prove anything.)
We’ve bolded the ones we think the prosecution will have a tough time proving, based on what we know about the evidence they have which, admittedly, is still incomplete
Judge Holwell’s instructions to the jury on how they should judge whether or not Raj is guilty say that the prosecution must prove:
1. That the insider or “tipper” giving Raj information had a relationship of trust and confidence with the company and was told that by revealing information, he would be breaching that trust.
Rajat Gupta, a member on Goldman Sachs’s board, for example, may be able to say something like, “I didn’t know I wasn’t supposed to call my friend Raj just a few minutes after I heard from Lloyd Blankfein that earnings would be worse than expected.”
Or he might have assumed that since everyone on the board knew information X, and not just him, mentioning was somewhat public and it wouldn’t violate Goldman’s trust.
It sounds like the prosecution will have to prove that the tippers were told by their companies not to disclose every bit of information Raj received from tippers.
2. That the tipper knowingly breached that trust by disclosing material nonpublic information.*
This is pretty subjective, so it the jury could be swayed. For example, if a husband tells his wife what happened at work during his day, or calls his friend to explain why he’s an hour late, and he happens to disclose material nonpublic info, he might be knowingly breaching his company’s trust. Or he might be a erring human.
The prosecution will likely have to prove that Rajat Gupta, to use the same example, knew that Goldman Sachs had trusted him not to tell Raj what he knew, and told him anyway.
3. That Raj knowingly received information from the person inside the company with that intimate knowledge. And that he knew the tipper violated that trust in disclosing it.
Using Rajat Gupta as an example again, he was on the board of Goldman Sachs, but maybe by some definition, he doesn’t classify as “someone with intimate knowledge” because he only spends X number of days per year doing work related to Goldman.
Another person who will testify, for example, Danielle Chiesi, a hedge fund analyst, probably won’t be considered a person with intimate knowledge of that company. She worked for a hedge fund, not any particular company that Raj might have traded the stock of. It sounds like Raj heard second-hand info from her.
And maybe, because any number of people might have known about the information, Raj didn’t know his tippers were violating anyone company’s trust.
4. That a trade was made on the inside information.
Raj’s lawyer John Dowd said in 2009 that Raj’s team of analysts made eight of the trades based on their own research. And Dowd recently tried to get the judge to throw out evidence of four trades that the prosecution wanted to use. So Dowd might have something up his sleeve.
But evidence of any trade Raj made on company stock that he had learned information about will look pretty damning coming from the prosecution’s side, and it appears they have evidence of Raj or Galleon making at least eight trades that fit the bill.
5. That the tipper benefitted directly or indirectly by disclosing the information. And that in benefitting by disclosing that information, the tipper was aiding and abetting an insider trade.
The government alleges that Raj paid Anil Kumar, for example, via a Swiss bank account.
The prosecution could allege less and prove “without a reasonable doubt” that a tipper benefitted indirectly somehow.
6. That two or more people entered into an agreement to trade on material non-public information. And that they had a mutual understanding, spoken or unspoken, that the information would be traded on.
Raj told Danielle Chiesi that he “gets a lot of shit on a lot of companies” and told her to conceal her insider trading, according to the prosecution, but if they entered into an agreement, when did they? There might be some wiggle room here.
7. That the people voluntarily joined in this group.
Raj might have been in the insider trading ring, but did he *know* he was joining it? If not, it’s hard to say he was voluntarily a part of it, but if the prosecution wants him found guilty on this one, they’ll have to prove he was.
8. That Raj knowingly committed at least one overt act as part of the agreement. (That he didn’t just agree to do it, he also did it.) And that insider trading was committed for the purpose of carrying out an unlawful agreement.
The prosecution will probably first have to prove that insider trading was committed, which hasn’t been proven yet. And then they’ll have to prove that Raj insider traded, for example, some stock because he had an agreement to with Anil Kumar.
Proving this will probably also require that the prosecution prove that Raj wasn’t just doing research, but that he knew he was taking part in an unlawful agreement.
The defence argues that Raj was just doing research and working hard for his clients.
* The judge defined it as “anything that a reasonable investor would have considered significant.”