A wealthy hedge fund manager got "red hot" information about a pending technology industry merger in 2006 and warned another wayward manager not to reveal inside securities secrets with her "little boyfriends," according to testimony and wiretaps presented Monday at an insider trading trial.
Former financial consultant Anil Kumar testified that he and the defendant, Raj Rajaratnam, broke the law by speaking regularly about the negotiations over the acquisition of ATI Technologies Inc. by Kumar's client, Advanced Micro Devices Inc., before the deal was made public.
"I told him that this was 'red hot' and shouldn't be discussed," Kumar said. Later, he said he cautioned the defendant, "This is going to be a complete shock to the industry ... so treat this with the strictest of confidence."
Prosecutors say Rajaratnam raked in $20 million by trading on his advance notice of the ATI-AMD deal. Afterward, he called Kumar at home and "said something like, 'You're a star' or 'You're a hero,'" Kumar told the jury in federal court in Manhattan.
When Rajaratnam later told Kumar that he would be rewarded with a $1 million kickback, "I almost fell off my chair," the witness said.
Jurors also heard FBI-recorded phone conversations from 2008, including one with Danielle Chiesi, another hedge fund manager who has pleaded guilty to trading secrets with Rajaratnam. In it, the pair bantered about a convicted IBM executive, Robert Moffat, who has claimed he was having an affair with Chiesi while aiding the scheme.
The defendant told Chiesi she should "keep radio silence" about an undisclosed multibillion-dollar deal _ "even with your little boyfriends."
"Oh please. That is my pleasure. ... I don't have any friends," she responded.
In another call, an agitated Chiesi fretted about hedge funds coming under scrutiny because of their success.
"I know everyone's being investigated," she said.
Rajaratnam, 53, of Manhattan, is charged with conspiracy and security fraud. He is the only one of more than two dozen people charged in the insider trading crackdown to face trial. Nineteen people have pleaded guilty.
The government alleges that Rajaratnam earned more than $50 million illegally by trading on inside information since 2003 _ the biggest hedge fund insider trading case in history. The investigation also has led to another probe that targets those who pose as researchers in the securities industry as they pass secrets about public companies to hedge funds.
Rajaratnam's lawyer told jurors during opening statements last week that his client had the best research in the business and did not need to trade illegally.
The 52-year-old Kumar, of Saratoga, Calif., pleaded guilty to securities fraud charges last year and became one of the government's star witnesses in the hopes of leniency at sentencing.
Kumar, who worked for McKinsey & Co. for more than 23 years before his October 2009 arrest, testified last week that he met Rajaratnam when they both attended the University of Pennsylvania's Wharton School in the early 1980s. After starting Galleon Group LLC _ a family of hedge funds that shut down after his arrest _ Rajaratnam offered him hundreds of thousands of dollars for inside tips that was stashed in overseas bank accounts, Kumar said.