Taped conversations of Raj Rajaratnam discussing confidential information about Goldman Sachs did not help the defense in the Galleon insider-trading trial yesterday.
The first tape, from Sept 24, 2008, showcases Rajaratnam confiding to Galleon trader Ian Hororwitz that “something good might happen at Goldman.” That good thing turned out to be a $5 billion investment in Goldman by Berkshire Hathaway. The source of the information was former McKinsey chief Rajat Gupta, a member of Goldman’s board of directors.
The Berkshire tip came in at 3:58 PM, giving Rajaratnam two minutes to buy up Goldman shares. On the tape, Rajaratnam says to Horowitz:
"I got a call at 3:58, right? Saying something good might happen to Goldman, right?"
Rajat Gupta was the source of the phone call, according to prosecutors. Gupta called seconds after hearing the news at a Goldman board meeting, setting Rajaratnam into a flurry of activity to acquire Goldman shares in the last two minutes of the trading day. First he tried going through a Galleon trader named Ananth. When that failed, he turned to Galleon manager Gary Rosenbach:
"So I told Ananth to buy some. He was fucking around. He can't, you know. So I went to Gary and just buy me, right?"
Rajaratnam was able to procure $27 million in Goldman shares just before the close. He failed to acquire another $16 million’s worth.
Tape number two dated from October 24, 2008. On it, he is heard talking to David Lau, a Galleon trader based in Singapore:
"I heard yesterday from somebody who's on the board of Goldman Sachs that they are gonna lose $2 a share. The Street has them making $2.50. I'm gonna whack it, you know."
Once again, the source of the tip was Rajat Gupta. This time, the tip helped Rajaratnam avoid $3 million in losses.
Former Galleon manager Adam Smith was on the stand during the playing of the tapes. Smith has pleaded guilty and is cooperating with prosecutors. Defense attorneys tried the usual tactic of discrediting the prosecution witness. They pointed to a January 14 tape in which Smith unsuccessfully tries to get Horowitz to implicate himself. Horowitz, not being a complete moron, instead turns the tables on Smith and accuses Smith of entrapment.
When confronted with the recording yesterday, Smith replied:
"It was an absolutely impossible situation for me, but I chose to do it. It was impossible because anything I chose would be a bad outcome for me…. The FBI put pressure on me to do it, they said they had evidence against Mr. Horowitz."
Defense attorney Terence Lynam: "You want the jury to believe you were lying then, but telling the truth now?" Smith replied “Yes”.
Lynam: "Don't you want to avoid a long prison sentence, and the best way is to testify in this case today?"
Smith: "The reason I'm here is because I signed the plea agreement and agreed to testify truthfully. If I lie from this day forward, I face the maximum sentence. And if I tell the truth and nothing but the truth, then I have a chance."
© 2011 Hedge Fund Writer LLC
