The Raj Rajaratnam complaint lays out how Rajaratnam and his alleged co-conspirators carried out their insider trading schemes.
Really, it isn’t a complicated tale.
According to the complaint, insiders at the various companies — or consultants for the companies — gave either Rajaratnam, a co-conspirator or the unnamed cooperating witness (CW) early information about earnings releases or huge upcoming deals (Blackstone acquiring Hilton or AMD’s spin off its manufacturing operations to a Dubai company).
Rajaratnam would either buy up the stock — always via Galleon — if the news was good or sell short if the news was bad.
And that’s it. No high-minded insider research or serious stock analysis here.
A Polycom exec told CW that Polycom would beat expectations for the quarter ending December 21, 2005. CW told Rajaratnam the news, Rajaratnam bought shares pre-announcement and sold just after the announcement. The profit was approximately $700,000.
Hilton executives told a Moody's analyst that Blackstone was going to acquire Hilton and an announcement would be made prior to July 4, 2007. The Moody's analyst told CW, who told Raj. Rajaratnam bought Hilton on July 3. Hilton made the announcement after market July 3 and Rajaratnam sold on July 5, making nearly $4 million in profit.
Google hired Market Street Partners to assist in preparing and distributing quarterly earnings announcements and other press releases. A Market Street employee told CW that Google's earnings per share would fall below analysts' expectations for the quarter ending June 2007.
CW and the analysts spoke several times, and CW was in communication with and and provided that information to Rajaratnam. Over several days in July, Rajaratnam purchased put options in Google. After Google announced its lower than expected earnings, Rajaratnam either covered the short or sold the put options for a profit of approximately $8 million.
The Market Street employee eventually wanted money for his or her information adn when CW would not pay, he or she stopped talking.
Defendant Rajiv Goel was employed by Intel Capital and, in 2008, told Rajaratnam about a pending investment by Intel, Spring and others in Clearwire. Goel discussed 'heavyweight' board members that would be named to the new Clearwire entity and kept Rajaratnam up-to-date on the progress of the deal. Rajaratnam purchased Clearwire stock for several days.
The WSJ broke the story that Sprint and Clearwater were trying to raise money and a Galleon employee, who was doing the purchasing, told Rajaratnam, 'We're fucked' because the story had broken in WSJ. The employee was worried not enough of their purchases had gone through.
Goel later informed Rajaratnam that the deal was not going as planned and Rajaratnam sold shares, making a profit of $579,000.
The person named as Co-Conspirator 1 (CC-1 in the indictment) was in contact with an Akamai executive. (By comparing dates and charges, CC-1 appears to be Danielle Chiese, who worked at Bear Stearns' equity hedge fund group, New Castle, whose indictment was also announced today.) The Akamai executive informed CC-1 that Akamai would be 'guiding down.' On July 24, 2008, CC-1 gave the information to Rajaratnam, who told her they needed to keep it 'radio silent.'
Over the next several days, Rajaratnam caused the Galleon to short shares of Akamai. CC-1 stopped calling the source, afraid he would lose his job and she would get blamed. On July 30, Akamai announced its earning would be 42 cents below expectations. The next day Rajaratnam thanked CC-1 for the information she had provided and, over the next week, sold the put options for a profit of $3.5 million.
The AMD insider trading involves both CC-1 and co-defendant Anil Kumar providing information to Rajaratnam. Kumar is an employee of McKinsey and Company. McKinsey was hired by AMD to consult on a deal in which AMD spun off its manufacturing business.
In June 2008, CC-1 told Rajaratnam she had spoken to an AMD executive who told her the deal was not close. Rajaratnam advised her to sell short AMD stock but to go long it before the deal.'
In August, Kumar called Rajaratnam to tell him the parties had 'shaken hands' and that Rajaratnam could just buy stock. Kumar told Rajaratnam that the deal would not be announced until the week after labour Day. Rajaratnam told Kumar he would buy one million shares of AMD stock 'in the India book.'
CC-1 had info that the AMD executive was meeting with IBM over IBM technology to be licensed to AMD. CC-1 talked to both an AMD executive and an IBM executive about the deal.
Rajaratnam bought shares and call options over several days in mid-August. CC-1 and Rajaratnam had conversations in which they noted they would not be 'longing' AMD stock without their information. CC-1 worried she would get 'fucked' because regulators would likely be tipped off if AMD did too well because she had bought so much. Rajaratnam told her she should 'buy and sell, and buy and sell.'
On September 29, Kumar told Rajaratnam the announcement would be October 7, which it ended up being. Rajaratnam ended up not making a profit on the AMD deal due, in part, to the financial crisis.
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