Defense case begins in NYC insider trading trial

AP News
Posted: Apr 11, 2011 3:01 PM
Defense case begins in NYC insider trading trial

A wealthy hedge fund manager accused in a massive insider trading case that shook Wall Street was in command and above board while overseeing $6 billion in investments, one of his former lieutenants testified Monday.

At daily 8:30 a.m. meetings at the Galleon Group's headquarters on Madison Avenue, Raj Rajaratnam "was the most prepared of any of us," Richard Schutte told jurors at Rajaratnam's trial in federal court. "It was impressive to watch."

Added Schutte: "He didn't tolerate anyone coming in late."

Schutte _ an MIT-graduate and former Goldman Sachs analyst hired by Rajaratnam in 2004 _ was one of the first witnesses to testify for the defense.

"I thought very highly of Mr. Rajaratnam," he said about his decision to join Galleon.

A roster of government witnesses, including another Galleon executive who has pleaded guilty, have testified that Rajaratnam used inside, non-public information to gain an illicit advantage over other investors in high-stakes trades in technology, health care and other stocks. The jury has heard recordings of the defendant's phone conversations that prosecutors say show he was trading secrets on companies like Intel and eBay.

By contrast, Schutte testified that Rajaratnam's firm earned its success by relying on sophisticated analysis and research to trade up to 75 million stocks each day. He suggested his former boss had nothing to hide, saying he maintained "an open door policy" with his hedge fund team.

The witness also described the sudden demise of Galleon after Rajaratnam was arrested in October 2009.

"The decision was made to wind down the operations," he said. "We had to terminate literally everybody."

Prosecutors allege the Sri Lankan-born Rajaratnam, 53, used the inside tips to make $53.8 million in profits and avoid about $10 million in losses _ what they've called the biggest-ever hedge fund insider trading case. He has pleaded not guilty to conspiracy and security fraud charges.

The investigation, which relied on extensive use of wiretaps, has resulted in more than two dozen arrests. Already, 19 of those arrested have pleaded guilty, and many are cooperating with prosecutors.