No Bail for Jiau

Winifred Jiau is in jail, and will stay there for the time being. She is accused of passing along confidential information in the Justice Department’s continuing insider-trading inquiry. But her bail was revoked when she was found by the Federal Bureau of Investigation with bags packed, $20,000 in cash, in a running car at her digs in California. 

She was initially granted, but failed to come up with, $500,000 bail. Bail was subsequently revoked when she was discovered plotting to leave the jurisdiction for her native Taiwan, where she is a dual citizen. It seems that she and a former lover were exchanging coded messages regarding fleeing the country – messages that were intercepted and decoded.

Earlier this week,  U.S. District Judge Jed Rakoff held a bail hearing for Jiau and said that he was “unlikely” to grant bail to a person who was “a substantial flight risk”.

The Justice Department has accused Jiau of giving inside tips about two companies to the former portfolio manager at SAC Capital Advisors, Noah Freeman, and to another hedge fund employee. She pleaded not guilty in February to the charges. Jiau had been a consultant at Primary Global Research, an expert-network firm.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Wiretaps Prove Rajaratnam Chatted Up Inside Tips

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."

Defense attorneys questioned Smith about a missing Galleon laptop computer. Smith originally said it had been misplaced, but later admitted to destroying it along with a handwritten notebook.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Utah Ponzi Scheme Revealed

His name is John Scott Clark, and according to the Securities and Exchange Commission, he’s a Ponzier. The Utah man and his two funds, Impact Cash and Impact Payment Systems, scored $47 million from gullible investors, including three hedge funds that should have known better.

Clark is accused of lying to investors and misappropriating funds. The trio of unnamed hedge funds invested at least $15 million with Clark, who promised the clueless threesome annual returns of 55 percent. The rooked hedge funds hail from San Francisco and New York. It was apparently as easy as stealing candy from a baby.

Some investors were told lurid tales of 80 percent returns and dove in with eyes wide shut. As Ken Israel, chief of the Salt Lake City SEC office put it:

"Clark recruited new investors through referrals from earlier investors who thought the Ponzi payments they received were actual returns on their investments and sought to share the lucrative opportunity with family and business associates."

Clark was no slouch when it came to self-indulgence. Investment money lined his pockets, buying him cars, snowmobiles, a home theater worth $25,000, and a lot of dubious “art”. 120 investors had been told by Clark that their money would be kept in segregated accounts. Instead, it went into his personal account. 

Clark was so arrogant, he usually didn’t even bother to provide financial statements, and the ones he did provide were wack. 

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Prosecutors Accuse Rajaratnam Brother

Raj and Rengan Rajaratnam

Prosecutors filed a motion on Monday to allow the jury to hear about evidence that the brother of Galleon Group founder Raj Rajaratnam conspired in a cover-up. The brother, Rengan, apparently went into Raj’s office after his arrest on 16 October 2009 and removed several notebooks, according to former Galleon trader Adam Smith.

The notebooks contained handwritten notes, said Smith. Prosecutors posit that Smith’s testimony would prove Rengen’s participation in a conspiracy. Raj’s lawyer, John Dowd, disagreed:

"It would be impermissibly prejudicial, and of no probative value whatsoever, for the government to elicit testimony suggesting that Mr. Rajaratnam and his brother were concealing evidence," According to Dowd, the notebooks pertained to "Rajaratnam's charitable donations and real property holdings".

Several other narratives from Smith were outlined by prosecutors. Smith pleaded guilty in January to charges of insider trading. He supposedly will explain how Kamal Ahmed, a Morgan Stanley banker, passed him insider tips. The filing charges that Rengen solicited Smith to participate in the cover-up.

"Rengan told Smith that, when someone discussed 'Kamal' with Raj, Raj would say it was a reference to Kamal Das, a sell-side analyst (and not Kamal Ahmed, a Morgan Stanley investment banker whom the government intends to prove provided inside information to Smith, which Smith in turn provided to Raj).”

Smith admitted to attending a Galleon meeting shortly after Raj’s arrest, according to a FBI interview of Smith on 1 February:

"Raj was non-specific and very emotional, according to the individual. Raj told the employees that he was a fighter, that he was going to fight," and said that "the FBI agents had treated him horribly, would not let him use the bathroom and just kept him sitting there." 

U.S. District Judge Richard Holwell appeared to be favoring not admitting mention of the notebooks into evidence. Neither Rajaratnam has been charged with obstruction of justice so far.

In another line of possible testimony, Smith could explain how Rajaratnam told Galleon trader David Lau that Raj could obtain early information on Goldman Sachs’ fourth quarter results. Rajaratnam is accused of learning this information from former Goldman director Rajat Gupta. Additionally, Smith said that Joseph Liu, a Galleon analyst, talked about the "thrill in having inside info edge."

 

Another tape involving Smith is being contested by both sides. On this tape, Smith tried unsuccessfully to incriminate a former Galleon trader, Ian Horowitz. Prosecutors are trying to suppress the wiretap unless Horowitz was called to testify.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Two Hedge Fund Scammers Sentenced

Its seven years in the Big House for Igor Levin and Yevgeny Shvatsshteyn. That’s a year for each $1 million they stole from investors.

The judge, U.S. District Judge Sidney Stein, ordered the two scammers to also pay restitution of  $7 million. The hapless duo pleaded guilty to fraud last December. Apparently, they never invested any of their clients’ money in international real estate, as they had promised. They instead sent the money back to banks in Levin’s beloved Ukraine. 

He will love his native land even more after seven years, since he will be deported back to Ukraine at that time.

The dishonest duo has done hard time before. Shvatsshteyn spent over two years at the taxpayers’ expense a decade ago for mail fraud. His pal Levin cooled his heels for almost a year for a gun violation twenty years ago.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC