By Grant McCool and Basil Katz
NEW YORK (Reuters) - A U.S. prosecutor told a jury that greed drove hedge fund manager Raj Rajaratnam to establish a corrupt network of people to trade on inside information and make millions in illegal profits, as the trial got under way in the biggest Wall Street insider trading case in a generation.
Rajaratnam, sitting impassively as prosecutor Jonathan Streeter spoke, went on trial in New York on Wednesday in a high-stakes clash with the government. The U.S. Justice Department has made insider trading probes into the secretive hedge fund industry a priority, and the Rajaratnam prosecution is its signature case.
"Greed and corruption. This is a case about that man right there, Raj Rajaratnam, using stolen business information to make tens of millions of dollars," Streeter, an assistant U.S. attorney, told the jury, gesturing toward Rajaratnam.
The Sri Lankan-born Rajaratnam, 53, sat with his seven lawyers. His chief defense lawyer, John Dowd, was to get his turn to address the jury later on Wednesday.
In the wood-paneled courtroom, the prosecutor stood at a podium in front of the jury, with dozens of white and brown cardboard document boxes and files piled in one corner, under the defense table and next to the prosecutors.
Streeter said Rajaratnam, founder of the Galleon Group hedge funds, obtained an illegal advantage over ordinary investors.
"He exploited a corrupt network of people to obtain information" about company secrets such as earnings and mergers, the prosecutor said.
SECRETS AND WIRETAPS
The 12 jurors, including a nurse, a graphic artist and a city transportation department employee, were chosen from a pool of about 150 people.
In a trial expected to last two months, the five men and seven women will hear about corporate secrets, wiretaps and cooperating witnesses who are expected to testify about illicit stock tips allegedly fed to the Galleon Group founder.
The government accuses Rajaratnam of reaping $45 million in illegal profit between 2003 and March 2009.
Rajaratnam's defense team will provide some insight into its trial strategy in the face of hundreds of secretly recorded phone calls and several friends who could testify for the prosecution. His lawyers contend that the government has significantly broadened its definition of insider trading.
Not since the mid-1980s has a Wall Street insider trading case grabbed such wide public attention. Then, speculator Ivan Boesky, Drexel Burnham Lambert and its junk bond chief, Michael Milken, were prosecution targets.
Jury selection, which began on Tuesday, went relatively quickly for such a high-profile case.
At one point during U.S. District Judge Richard Holwell's questioning of prospective jurors, a 47-year-old woman said she only watches comedies on TV and Holwell responded, "I agree."
One prospective juror said he did not read newspapers because he found them to be "depressing."
Everyone in the courtroom laughed when another recounted watching "Two and A Half Men," the TV show that fired actor Charlie Sheen after his rants about the show's creator.
Asked what she liked to do in her free time, one said "jury duty" bringing laughter. She is on the panel.
But the case is no laughing matter for Rajaratnam, who could go to prison for 20 years if convicted of the most serious charge of securities fraud.
Since arresting Rajaratnam in October 2009 and announcing criminal charges against 26 former traders, executives and lawyers, authorities have pressed on with what they call the biggest ever hedge fund insider trading probe.
Nineteen people have pleaded guilty in the Galleon case. It stands apart from past insider trading investigations because of the government's wide-scale use of phone taps. Jurors will hear up to 173 audio recordings during the trial.
The case is USA v Raj Rajaratnam, U.S. District Court for the Southern District of New York, No. 09-01184.
(Additional reporting by Basil Katz, editing by Andrew Marshall, Dave Zimmerman, Gary Hill)