There was no courtroom sparring between government witness and the defence today, but jurors did hear about the feud that festered between Raj Rajaratnam and PeopleSupport before the former was arrested for insider trading.PeopleSupport was an outsourcing company of which Galleon owned about 25% back in 2008.
As the single largest individual shareholder in PeopleSupport at the time, Galleon wrangled itself onto the company’s board with a company designee.
That designee was Krish Panu, who not only passed along confidential information about the company to Raj (who passed it along to his friend) according to the government, but trash-talked the crap out of the other board members on the phone with Raj, according to wiretaps the whole courtroom got to hear.
During one conversation, Panu told his boss, “people are really going to be pissed off with these idiots,” and said later said, with pride: “I’ve become really an arsehole to the board.”
Panu’s obvious displeasure with PeopleSupport was not simply personal; Galleon had numerous complaints about the way firm was conducting its business.
Raj Versus PeopleSupport
Raj was furious that PeopleSupport had embarked “upon an ambitious real estate project in the Philippines” and strayed away from the company’s core business in outsourcing. In letter filed with the SEC, Raj said the project was too expensive for the firm to carry out, and believed it could jeopardize the whole company.
That wasn’t the Galleon founder’s only gripe. Raj and other shareholders were livid that PeopleSupport had accepted an acquisition offer from an Indian conglomerate called Essar, priced at $12.25 per share, when the year before, it had rejected an offer from a different company for $17 per share.
The resentment was mutual.
The board of PeopleSupport, including its chief and founder, Lance Rosenzweig, weren’t happy about Galleon 25% stake in the company. There was nothing the firm could do about this: PeopleSupport was a public company, and Galleon, like others in the market, were permitted to buy up stock if they so desired.
The Poison Pill
But PeopleSupport weren’t content to let Galleon acquire any more stock, lest they wake up one day and find themselves in the midst of an hostile takeover. So they came up with a solution: A Poison Pill, preventing Galleon from purchasing more stock.
Terence Lyman, of Raj’s defence team, told jurors that Galleon had never taken over an entire company before, or sought to, and that a 25% stake doesn’t correspond to a desire to take control of a firm.
The Poison Pill pissed off Raj — he asked PeopleSupport to abandon the idea. They did not, so according to the government, he found a way to work around it. Forbidden from buying more through Galleon, Raj went about trying to buy more shares through his friend Rajiv Goel.
He not only revealed confidential information about an impending merger of PeopleSupport and Essar, he then explicitly told Goel in a conversation taped by the FBI, that due to the Poison Pill, he couldn’t buy any more stock, but had tried to do so using Goel’s Charles Schwab brokerage account.
On an earlier call, Panu had told Raj that Rosenzweig was going to India to meet with companies to discuss potential acquisition, which was confidential and should never have been revealed, PeopleSupport’s former counsel, Peter Pham testified later this afternoon.
Wiretaps confirmed that Raj passed along some of what he learned from Panu, to Rajiv Goel.
Moody’s analyst Margaret Holloway took the stand at 4.50 pm. The trial is adjourned until Monday.
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