A wealthy Wall Street hedge fund founder authorized the illicit gathering of inside information about publicly traded technology companies to "get an edge" on massive trades that made millions, a cooperator testified Tuesday at an insider trading trial.
Adam Smith told jurors that he was hired in 2002 by Raj Rajaratnam's Galleon firm to manage a $100 million fund. Two years later, he said he told the defendant that an Intel executive had offered to leak him advance notice on the computer chip maker's quarterly earnings in exchange for a consulting fee.
"I told him exactly what the conversation was," Smith said of Rajaratnam. "He agreed to it."
The 39-year-old Harvard graduate testified that he regularly sought inside tips to "get an edge" on financial results that were "different from what the expectation on Wall Street was."
The motivation "was to improve the profitability of the firm and to help Raj," he said.
Smith said he helped his boss by passing on a tip from a Morgan Stanley insider who confirmed that tech manufacturers Advanced Micro Devices and ATI Technologies were on the verge of a merger in 2006. Despite speculation on the street to the contrary, the deal went through several few weeks later.
The tipster "wasn't authorized to tell me," Smith said.
To cover their tracks, Smith said he and others at Galleon were under strict orders by Rajaratnam "to communicate sensitive information verbally or over the phone, but not in written form."
Rajaratnam was arrested in October 2009 and charged with making $50 million off of confidential information _ what prosecutors bill as the biggest-ever hedge fund insider trading case.
The investigation, which relied on extensive use of wiretaps, has resulted in more than two dozen arrests. Already, nineteen of those arrested have pleaded guilty, and many, including Smith, are cooperating with prosecutors.
Smith has told investigators that following Rajaratnam's arrest, the Galleon chief was "very emotional" during an office meeting.
He "told the employees that he was a fighter, that he was going to fight," according to an FBI summary of Smith's account.
Smith also has claimed he saw Rajaratnam's brother remove documents from Rajaratnam's office on the morning of the arrest, and later pressured him to stay quiet.
After secretly pleading guilty last year, Smith agreed to record phone calls with targets of the far-reaching securities fraud probe. He said the FBI coached him on how "to get the person on the other end of the call to say something specific." None of the tapes were played on Tuesday.
Smith was to return to the witness stand on Wednesday.