Raj Rajaratnam, the co-founder of the Galleon Group LLC hedge fund, used an illegal network of secret sources to earn millions of dollars in illicit profits, a prosecutor told jurors at the start of the biggest insider trading trial in a generation.
Almost 17 months after Rajaratnam’s arrest, a panel of 12 jurors and six alternates began hearing opening arguments today in Manhattan federal court, led off by Assistant U.S. Attorney Jonathan Streeter before a packed courtroom.
“He exploited a corrupt network of people,” Streeter said of the 53-year-old Rajaratnam. “Using this network, he bought business information. Using this network, he had his employees go out and bring information to him. This was all information that ordinary people didn’t have.”
“Mr. Rajaratnam traded on such information again and again and again,” Streeter said “He knew what he was doing was illegal.”
Streeter told jurors that they’ll hear Rajaratnam committing crimes in “real time” as they listen to government wiretaps. Rajaratnam told his accomplices to “trade stocks in a way that would hide” their insider trading and to “create a paper trail” that would conceal the illegal tips, Streeter said.
In the closing days of the scheme, when Rajaratnam began to suspect that he was under U.S. investigation, he told an associate to use a pre-paid cell-phone so they could hide the scheme, Streeter said.
“The sources of his secret information were as different as his investments,” Streeter said. He got information from “a board member at a public company,” “from his own employees,” and from outside consultants including Anil Kumar, a longtime friend who had gone to work for McKinsey & Co., Streeter said.
“He had access at the highest levels of corporations,” Streeter said of Kumar, who has pleaded guilty and is testifying for prosecutors in exchange for leniency.
Rajaratnam is the central figure in the largest investigation of hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of making $45 million from confidential information leaked by corporate insiders and hedge-fund traders. Rajaratnam, a billionaire, may spend as long as 20 years in prison if convicted of fraud.
A defense lawyer will present Rajaratnam’s opening argument this afternoon, after the prosecutor concludes his presentation. Rajaratnam’s lawyers have argued that investment advisers routinely speak to company insiders as part of their research on companies.
Earlier today, U.S. District Judge Richard Holwell completed the selection of a panel of jurors who will sit in judgment for the next two-to-three months. Rajaratnam faces five counts of conspiracy to commit insider trading and nine counts of securities fraud.
Witness testimony is likely to begin tomorrow.
Federal prosecutors in Manhattan have announced charges against more than three dozen traders, corporate insiders, expert networking consultants and lawyers since Rajaratnam’s arrest in October 2009. The investigation may last another two years, prosecutors have said.
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
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