Proshare Logo
   Market Date: 19-12-2014   
Agriculture ARTS FINANCE All One Min News Archives Bonds Cap Mkt Sentiments Capital Market CASHLESS NIGERIA Commodities Corporate Earnings Daily & Weekly Market Updates Enterpreneurship ETFs Forex Frauds & Scandals General Global Market Insurance Investors NewsBeat Islamic Finance Mergers & Aquisitions Money Market Mortgage Mutual Funds Nigeria Economy Oil Sector Opinions and Analysis Pensions People Personal Finance Politics Power Products & Services Professionals Property Public Offers Private Placements Regulators REITs Stock PICKS Taxation Telcos Travel & Tours Unlisted OTC MARKET World of Business

Galleon Founder Convicted on All Counts in Insider-Trading Trial

Category: Frauds & Scandals


  Read (2638)
Galleon Founder Convicted on All Counts in Insider-Trading Trial

 

 

May 11. 2011 by MICHAEL ROTHFELD and CHAD BRAY
 
A federal jury convicted Galleon Group founder Raj Rajaratnam on all 14 counts of securities fraud and conspiracy, providing the U.S. with a significant win in a push to prosecute insider trading on Wall Street and in corporate America.
The verdict by the 12-member jury, following 11 days of deliberation, capped a blockbuster trial that started in early March featuring 45 recorded calls showing how the hedge-fund executive trafficked in insider tips provided to him by a web of contacts at the top tier of American business.
The widely watched trial exposed the behind-the-scenes dealings of a once-prestigious hedge fund that gained access to highly sensitive information about, among other things, Goldman Sachs Group Inc. at the height of the financial crisis. The government put at $63.8 million the amount in illegal profits and avoided losses Galleon realized through the scheme.
Mr. Rajaratnam, 53 years old, showed no emotion or reaction as the verdict was read. He will be sentenced on July 29.
Outside court, lead defense attorney John Dowd said he planned an appeal. "The case started out with 37 stocks and is down to 14," he said. "The score is 23-to-14 in favor of the defense. We'll see you in the Second Circuit."
The jurors all looked serious as the verdict was read, some looking down. When the judge's deputy polled the jury to see if it was their verdict, the last jurors said "Yes," very loudly.
U.S. District Judge Richard Holwell instructed jurors not to discuss the verdict, and released them from the courtroom. They were escorted away by court security officers.
But juror Leila Gorman Gonzalez, swiping a subway card to get on a train a block from the courthouse, said of the verdict, "There was just a lot of evidence." She said she was "relieved" that the trial was over, and declined to comment further.
The judge rejected a request to incarcerate Mr. Rajaratnam despite the contention of Assistant U.S. Attorney Jonathan Streeter that he might flee because he faces a long sentence, has tens of millions of dollars overseas and strong ties to his home country of Sri Lanka. "He is obviously a risk of flight," Mr. Streeter said.
Instead, the judge ordered Mr. Rajaratnam confined to home detention on electronic monitoring, agreeing with Mr. Dowd, who argued that Mr. Rajaratnam had so far obeyed all the conditions of his bail and turned over $70 million to the government as security in case he were convicted.
"I believe that, based on the defendant's track record to date, he has exhibited that he is not a risk, a significant risk of flight," the judge said.
Mr. Dowd said Mr. Rajaratnam indicated he would appeal the judge's decision to let government wiretaps be played at the trial, calling it "a very substantial issue" on which he would seek to overturn the verdict.
In a statement, Manhattan U.S. Attorney Preet Bharara said Mr. Rarjaratnam had been "one of the most educated, successful and privileged professionals in the country."
"Yet like so many others recently, he let greed and corruption cause his undoing," said Mr. Bharara, who was in Washington, D.C., and didn't attend the reading of the verdict. "Unlawful insider trading should be offensive to everyone who believes in, and relies on, the market.…We will continue to pursue and prosecute those who believe they are both above the law and too smart to get caught."
The verdict marks one the most high-profile successful prosecutions of a financial giant since the convictions of Bernard Ebbers and Jeffrey Skilling, former top executives at WorldCom and Enron, respectively, last decade.
The conviction could strengthen the hand of Mr. Bharara, who has made insider-trading enforcement a focus of his office. Prosecutors in New York are in the midst of pursuing other large insider-trading probes, including one involving "expert network" firms, in which consultants hired to provide information to hedge funds are accused of giving them inside information.
A turning point in the trial came when prosecutors played a tape showing that Mr. Rajaratnam received information about an expected quarterly loss at Goldman—its first as a public company—from a Goldman board member, Rajat Gupta, who then was among the nation's most esteemed directors.
The trial featured appearances from such high-powered financiers as Goldman Chief Executive Lloyd Blankfein, who testified for the government about the highly confidential nature of the information relayed by Mr. Gupta to Mr. Rajaratnam.
Mr. Blankfein told jurors Mr. Gupta had violated his duties as a board member by sharing confidential information about Goldman with Mr. Rajaratnam. Mr. Gupta hasn't been charged criminally; he previously denied any wrongdoing through his lawyer.
Defense lawyers had argued that Mr. Rajaratnam made money using legitimate research. Mr. Dowd, Mr. Rajaratnam's chief attorney, attempted to mar the credibility of the government's witnesses who testified in support of its case.
Mr. Rajaratnam—who told people close to him he wanted to take the stand in his own defense—ultimately elected not to testify. Mr. Rajaratnam could be sentenced to as many as 20 years in prison on each count of securities fraud and up to five years on each count of conspiracy.
Central to the case against Mr. Rajaratnam was the government's use of wiretap recordings, which captured the defendant and his contacts swapping tips, as well as gossiping about associates.
The government had been pursuing Mr. Rajaratnam for insider trading since 2007, but it wasn't until it gained court permission to wiretap his phones in 2008 that the case against him congealed.
The tapes showed how such recordings can seal the government's case. In one call, Mr. Rajaratnam told a contact: "I heard yesterday from somebody who's on the board of Goldman Sachs that they are going to lose $2 per share. The Street has them making $2.50."
The call showed not only that the tip was from a Goldman insider, but also that the information diverged sharply from what investors had expected, making it "material," or likely to have an impact on Goldman's stock price.
The successful use of wiretaps in this case will likely lead to wider use of the tactic, which for years had largely been confined to drug and terrorism cases.
In addition to providing the government with effective evidence, the tape-recorded phone calls offered an unvarnished view of the dog-eat-dog world of finance.
In one call, Mr. Rajaratnam agreed with his brother that former McKinsey & Co. consultant Anil Kumar was a "great guy," only to deride Mr. Kumar's abilities in another call with Mr. Gupta—the Goldman director—saying Mr. Kumar aspired to be a "mini-Rajat," referring to Mr. Gupta.
Mr. Kumar pleaded guilty early in the government's investigation, and his agreement to cooperate in the case proved crucial.
Mr. Kumar's four days of testimony provided the cornerstone of the government's case, including damaging testimony from the consultant that he was paid $500,000 a year by Mr. Rajaratnam through an offshore account to an account in his housekeeper's name in exchange for insider tips.
One such tip, involving the acquisition of ATI Technologies Inc. by Advanced Micro Devices Inc. in 2006, generated Galleon profits of nearly $23 million, almost half the total profits the government said Galleon made in connection to the conspiracy.
Some of the tensest moments of the trial came during the cross-examination by Mr. Rajaratnam's lawyer, Mr. Dowd, of the soft-spoken Mr. Kumar, who wore a hangdog expression during much of his time on the stand.
Mr. Dowd aggressively questioned Mr. Kumar, at times nearly shouting as he pressed him on whether he received money from Mr. Rajaratnam in exchange for legitimate business ventures, rather than for providing inside information. Mr. Kumar pushed back, repeatedly answering the lawyer's questions with a one-word response: "Wrong."
There were embarrassing hiccups for both the government and the defense during the trial.
Mr. Rajaratnam's lawyers seemed to surprise Adam Smith, a former Galleon employee testifying for the government, when they raised questions about his credibility. Mr. Smith testified at the trial that he never had been asked by Galleon lawyers whether he was aware of insider trading at the hedge fund.
In fact, a later witness testified that Galleon lawyers had asked Mr. Smith that question, and that he had told the lawyers he wasn't aware of any such illicit trading at Galleon.
The defense also appeared to be caught off-guard at one point, when Assistant U.S. Attorney Reed Brodsky raised questions about a potential conflict of interest involving Galleon's former president.
Following questioning from Mr. Brodsky, Rick Schutte, the former Galleon president who testified for the defense, said that Mr. Rajaratnam had invested $25 million in Mr. Schutte's hedge fund, including $15 million Mr. Schutte received eight weeks before the trial began.
Allegations of a coverup of trading activities, and the reasons behind some trades, by Mr. Rajaratnam and his associates were presented at trial. In a recording of a phone call intercepted by the government that was played during the trial, Mr. Rajaratnam told two employees to create an email trail that would create an impression a stock purchase wasn't based on an insider tip.
"We just have a[n] email trail, right, that, uh … I brought it up," he told the employees after filling them in on a tip provided by Mr. Kumar.
Later, Mr. Rajaratnam told hedge-fund trader Danielle Chiesi—who has pleaded guilty to insider-trading charges—to cover her tracks by darting in and out of a stock to avoid an appearance of trading on an inside tip.
"What I would do is, I would buy a million shares and sell 500,000," Mr. Rajaratnam advised her. "If you want to buy 500, I would buy a million and sell on Friday 500,000, you know?" he said in one call.
 
Source: Wallstreet


Tags: , 



Comment With Your Facebook or Yahoo! ID


Latest news


News on Frauds & Scandals

About Us

Who We Are
Our Team & Partners
Corporate Governance
Advertise with Us
Subscribe / Unsubscribe
Site Map
News Feed - RSS
Newsletter
Contact Us
Volunteer Program
Message from CEO
Resources

News & Features
The Analyst / Market Data
Investor Relations Portal
The Regulator
Economy & Politics
WebTV
Training Portal
Events Calendar
NewsStands - Online Reputation

Products and Services

Research & Market Intelligence
Analyst Services
Offers & Rights Support Service
Investor Relations Services
Alert & Subscription Services
Share Support Services
Proshare Consult
Event & Seminar Coverage
Market Directory
File a Complaint
News & Analysis

#1minNews
News from TheANALYST
Video News from WebTV
Money Market Updates
Opinions & Analysis
Nigerian Economy
Market Data
The Regulator
Newsletters
Discussion Forum
Policy

Subscriber Agreement
Privacy Policy
Data Policy
Disclaimer
Copyright Policy
Trademarks
Comments in Site
Advertising Code
Conflict of Interest
Content Partnership
3rd Parties

Online Trading and Execution
Training
Legal Support Services
Web/Technology Services
File a Complaint

CBN Governor 2014