With U.S Attorney Preet Bharara slipping into the courtroom moments before the trial officially began, proceedings against Raj Rajaratnam finally got underway at a little after 2 pm today, with opening remarks from the government and the defence.
“Greed and corruption — that’s what this case is about,” federal prosecutor Jonathan Streeter declared with dramatic pace and intonation.
Streeter, standing at a lectern placed squarely before the jury, then laid out the government’s case against the Galleon founder and hedge fund billionaire, in front of a courtroom packed to the brim — not one, but two overflow rooms had to be set up for those who had come to watch or report on the trial but missed out on a live-action seat. We just scraped in ourselves.
Far from conducting regular, Wall Street research, Streeter said, Raj Rajaratnam knowingly used material, non-public information to gain an unfair advantage in the stock market and earn millions doing so. “He knew tomorrow’s news today and traded on it.”
Raj “exploited a corrupt network of people to get access to secret information,” Streeter explained, adding that as a “sophisticated man and investor,” the 53-year-old hedge fund manager knew that the company employees to whom he was talking about earnings and profits, were strictly prohibited from doing so. But he did it anyway.
Raj knew he was breaking the law, Streeter said. How does the government know this? Because Raj allegedly tried to cover it up with fake paper and email trails.
And Raj did it “again. And again. And again,” Streeter said theatrically. (He likes pace and dramatic pauses, this attorney). They have the audio records, phone records, emails and first-hand testimony to prove it, he said.
The government emphasised that not only did they have evidence of Raj’s alleged wrongdoing, they have evidence of Raj discussing and acknowledging that wrongdoing on tape. He also emphasised that jury members shouldn’t focus on whether tips resulted in a profit or loss for Galleon; “insider trading is insider trading even if it doesn’t work every time,” he said.
“They did their homework,” Streeter said of Galleon’s legitimate trading, but they “cheated too.”
Raj was seated beside another lawyer at the defence table, and sat patiently in the same position for the more than three hours it took for both sides to make their preliminary case. During the break between the government and defence’s opening remarks, Raj chatted with his legal team, his face, as always, coloured with a cheerful expression.
Streeter highlighted examples the government will use throughout the case to prove their argument.
Some of those examples were:
- Payments made to longtime friend, Anil Kumar, for inside information on clients he worked with at McKinsey: Raj allegedly paid his old Wharton friend and McKinsey exec, Anil Kumar, hundreds of thousands of dollars for inside information about clients including AMD. The pair allegedly came to an agreement in which Raj would make quarterly payments to Kumar for information, but because Kumar was concerned about the appearance of those payments, they organised to have funds sent to a Swiss bank account.
- Use of Kumar’s Indian housekeeper’s name to reinvest in Galleon: In addition to the alleged quarterly payment system — which eventually became an annual payment based only on information that proved “valuable” — Raj wanted Kumar to reinvest that money with his hedge fund, Galleon. Kumar objected, so to overcome his fears, they created an investment vehicle through which to reinvest in Galleon, using the name of Kumar’s Indian housekeeper.
- Raj told Danielle Chiesi to be “radio silent” and how to insider trade without drawing attention: Streeter says that Raj told hedge fund analyst Danielle Chiesi, he “gets a lot of shit on a lot of companies” and to be “radio silent” about certain information he received. He also allegedly explained ways for Chiesi, who will be testifying for the government, to conceal trading on inside information. Streeter says that in a particular phone call, Raj said to Chiesi, “Buy and sell; buy and sell; buy and sell” so that questionable trades are made within a flurry of other trades. He also allegedly told her: if you want to buy 500,000 shares in a stock, buy one million, then sell 500,000.
- Raj told employees within Galleon to create fake email chains to “protect” themselves: Streeter describes a conversation that Raj has with two Galleon employees about creating a fake email chain to give the appearance that trades on certain stocks — inspired by alleged insider tips — were legitimate. “I’ll send an email to you about Spansion saying, the stock looks cheap, right?” Raj is alleged to have said on one phone call. Then he allegedly instructs his underlings to write back to that email saying they’ll have an analyst do “some work on it.” Raj explains that this is “so that we protect ourselves.”
- Raj having a discussion with his brother about a McKinsey consultant who is “a little dirty”: Streeter alleges that Raj and his brother plotted to get inside information from a consultant at McKinsey who Raj described as “a Little dirty,” and talked about getting that consultant to “play ball.” The brothers also discussed putting that consultant’s wife on the Galleon payroll.
- Raj allegedly asked a co-conspirator to buy a pre-paid phone when he felt he was getting attention from the feds.
Then it was the defence’s turn. Raj’s lawyer, John Dowd, argued that Raj’s interaction and communication with company officials was merely symptomatic of his working hard for his investors. He employed mosaic research — like many companies on Wall Street — to get the best information on companies, and thus the best returns possible for his clients.
And, as expected, Dowd went for the jugular on every single government witness. Here’s what Dowd argued >