Legal News

Raj Opening Statements: ?Tomorrow?s Trades Today? vs. ?Shoe-Leather Research?

By Ashby Jones

If Tuesday in the Raj Rajaratnam trial was a bit under-stimulating, Wednesday saw the pace pick up considerably.

For starters, we got that little jury-selection item out of the way. The jury that will select rule on the fate of the Galleon Group founder is made up of seven women and five men. Thee jury skews a bit to the old side, but appears to represent an interesting cross-section of Manhattan, Bronx and Westchester County residents — including a woman who volunteered in the Israeli defense forces.

Click here for the lowdown on the jury, from Chad Bray and Susan Pulliam. Click here for the Bloomberg story.

With that business out of the way, opening arguments began.

The prosecution went first. Assistant U.S. Attorney Jonathan Streeter said that Rajaratnam used a "corrupt network" of consultants, company insiders and others to obtain inside information, which he used to make tens of millions of dollars in illicit profits.

According to Streeter, Rajaratnam actively sought out secret information about public companies in order to gain an illegal edge that other investors didn't have. As a result, he got "tomorrow's business news today.”

However, Rajaratnam’s lead lawyer, John Dowd, said his client did nothing wrong and only traded on publicly available information and research by his hedge fund firm. The government has it wrong and "failed to do its homework, Dowd said.

The trial, which is expected to last about 10 weeks, will feature testimony from several individuals prosecutors claim were part of the scheme and recorded telephone calls of Rajaratnam on which prosecutors have alleged Rajaratnam discussed improper trades.

Streeter said those individuals will include Anil Kumar, a former McKinsey & Co. consultant; Rajiv Goel, a former Intel Corp. executive; and Adam Smith, a former Galleon trader. All three men, who have pleaded guilty to criminal charges and are cooperating with prosecutors, allegedly shared inside information with Rajaratnam, which he then allegedly used to make improper trades.

Prosecutors also plan to play two telephone calls from 2008 on which Mr. Rajaratnam allegedly told Galleon employees that he had received tips regarding Goldman Sachs Group.

However, Dowd said in his opening statement, that Rajaratnam ran a legitimate business that used a "mosaic" of research in order to make trading decisions about companies and "built his success on shoe-leather research."

Full post as published by Law Blog - WSJ.com on March 09, 2011 (boomark / email).