Monday’s action at the trial of Galleon Group founder Raj Rajaratnam resumed with the focus shifting to suspect trades in two companies – Intel and Hilton Worldwide --and on a surprising prosecution motion to suppress some of their own wiretaps.
Hilton Worldwide
Prosecutors laid out a theory as to how Rajaratnam made $4 million in one day using inside information about Blackstone Group’s plan to acquire Hilton. The tipster was Roomy Khan, who had worked at Intel and Galleon. Ms. Khan has pleaded guilty to insider-trading and is cooperating with the prosecution. Ms. Khan’s source was allegedly the fugitive Moody’s analyst Deep Shah, who was in turn tipped-off by Moody’s analyst Margaret Holloway.
Ms. Holloway testified she told Shah about the deal a day before it was announced, and that prices slowly “started to creep up” directly thereafter.
Defense attorney Michael Starr helpfully pointed out that Rajaratnam had been purchasing a Hilton stake even before the tip, and that half-a-dozen published analyst reports predicted the sale of Hilton.
Intel
Intel executive Rajiv Goel was center stage as a wiretap was played in which Goel and Rajaratnam discuss a joint venture between Intel and Clearwire Corp. Goel has pleaded guilty and is a cooperating witness. On the tapes, both discuss the amount Intel might invest in the joint venture. On the stand, another Intel executive Sriram Viswanathan pointed out that some of the details in the discussion were confidential, and that Goel, as a member of Intel’s treasury group, would know these details.
The defense submitted a “list of knowers” that omitted Goel. It also argued that the so-called confidential information was in fact publicly known. Defense lawyer Terence Lyman submitted the following to Viswanathan: "The press was following the developments in regards to Intel and Clearwire and reporting on them regularly. It was out there."
"The stock market doesn't sit around and wait for a public announcement," Lyman lead on. "Money managers have to connect the dots, right?"
Prosecutors also tried to establish that Goel had a guilty mind, as he admittedly spoke so uncharacteristically softly when on the phone with Rajaratnam that Goel’s children would mock their father.
Prosecutors Move to Suppress Wiretaps
In an interesting twist, prosecutors tried to suppress one of their own tapes that they argued contained a conversation that was patently self-serving. Dated 15 months after Rajaratnam’s arrest, the tape has a Galleon trader, Ian Horowitz, covering his tracks as he is asked by another Galleon trader, Adam Smith, about his knowledge of a deal with Starent Networks. Smith was attempting to get Horowitz to admit to wrongdoing, but Horowitz wouldn’t be baited. The conversation went like this:
"I had no idea, like zero clue, that they were going to be acquired," Horowitz said. "I had no idea."
"Yeah, but they probably did, right?" Smith asked of Rajaratnam and other Galleon employees.
"I have no idea," Horowitz said. "It's not, but they never relay that to me. They never said to me, 'Oh, this is....' It was never like that."
"Like, I feel that you're… the questions you are asking me are like you are tapping me on the phone trying to get me to say some things," Horowitz said.
"Are you serious?" Smith asked. "Dude, come on."
"Yeah," Horowitz responded.
"You kidding me?" Smith asked again.
"That's why I ask, like, I don't get it," Horowitz said.
"Well, I, I'm telling you 100% that's not the case," Smith said.
The last statement was untrue: Smith had already cut a deal with prosecutors and made the phone call at the FBI’s behest. The government’s brief to U.S. District Judge Richard Holwell asked for the exclusion of the tape:
"The relevant recordings were made at the direction of the FBI by Adam Smith on Jan. 14, 2011, just after Smith had begun cooperating with the government. The fact that the government's efforts to develop evidence against Horowitz—in the form of an undercover recording—did not work is entirely inadmissible. Indeed, it is not at all surprising that the effort failed, in light of Horowitz's knowledge of the highly public investigation."
Prosecutors asked for a second suppression, this time of a conversation in which an analyst, Joe Liu, denies tipping Rajaratnam about earnings of Synaptic Corp.
"It is not surprising that Horowitz and Liu denied knowledge of wrongdoing, given that the government's investigation was fully public at the time of these statements."
Prosecutors argued that both statements were hearsay evidence and that if defense lawyers want them admitted, they should instead call Liu and Horowitz to testify. Smith is slated to testify for prosecutors as the trial continues.
©2011 Hedge Fund Writer LLC
