Tags: Hedge Fund | Insider Trading

US Insider Trading Defense: Government Misled Jury

Thursday, 21 Apr 2011 02:22 PM

The government has misled jurors about comments made by a wealthy hedge fund manager in a series of phone calls secretly recorded by the FBI, his lawyer said Thursday in closing arguments at a massive insider trading trial.

Prosecutors have made the wiretaps the centerpiece of their case against Raj Rajaratnam, the former head of the Galleon Group accused of making a killing off confidential information about major moves by publicly traded companies.

On one of dozens of tapes played for the Manhattan jury, Rajaratnam cautions another hedge fund manager, Danielle Chiesi, in 2008 that she should "keep radio silence" about an impending multibillion-dollar deal — "even with your little boyfriends." On another, prosecutors allege, he advises her to deliberately buy and sell stocks to create a pattern of trading that would conceal the scheme.

Defense attorney John Dowd argued on Thursday that the trades in question were part of a legitimate, sophisticated hedge fund strategy — not a cover-up — that was closely guarded by Galleon.

Rajaratnam "wanted Chiesi not to blab his positions all over Wall Street," Dowd told the jury in a continuation of a closing argument that began Wednesday. "His trading strategies were valuable in and of themselves."

The government was to give a rebuttal later Thursday. The jury could begin its deliberations as early as Monday.

Rajaratnam, born in Sri Lanka and educated at the University of Pennsylvania's prestigious Wharton School, has pleaded not guilty to conspiracy and securities fraud and remains free on $100 million bail. The Galleon funds shut down after his October 2009 arrest.

Prosecutors have accused the 53-year-old defendant of routinely using a covert crew of "corporate spies" to get rich off inside trades, while the defense insists he was merely one of the market's savviest investors.

Authorities have said Rajaratnam made profits and avoided loses totaling $68 million from illegal tips. Galleon, prosecutors say, became a multibillion-dollar success at the expense of ordinary stock investors who didn't have access to secrets about the earnings surprises of public companies and early word of mergers and acquisitions.

Rajaratnam had the illegal advantage of "trading on tomorrow's news today," Assistant U.S. Attorney Reed Brodsky said in his closing argument.

Prosecutors played another 2008 tape on which Chiesi confides to Rajaratnam, "I'm a little nervous because you know people are going to investigate me. I really believe that."

Dowd sought to downplay the tapes by portraying it as innocent behind-the-scenes banter by high-powered portfolio managers.

"That happens every day on Wall Street," he said. "There's nothing wrong with it."

Along with the tapes, the government has relied on the testimony of cooperators it says were corrupted by Rajaratnam, including a disgraced technology industry executive and analysts. The defense has attacked the credibility of the cooperators, who pleaded guilty to various securities charges and took the witness stand in a bid for leniency.

"Their testimony is unreliable and worthless," Dowd said Wednesday.

Chiesi has pleaded guilty but didn't agree to testify.

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