Federal prosecutors told a jury on Wednesday that exhaustive wiretap evidence proves a Wall Street heavyweight routinely used a cadre of "corporate spies" to get rich off inside trades, while the defense insisted he was merely one of the market's savviest investors.
When the Manhattan jury listened to FBI recordings of Raj Rajaratnam, "You heard the defendant commit his crimes time and time again in his own words," Assistant U.S. Attorney Reed Brodsky said in closing arguments at the biggest insider trading trial in history.
"The tapes show he didn't believe the rules applied to him," the prosecutor added. "Cheating became part of his business model."
Defense attorney John Dowd, in his closing, called the government's case unfair and misleading. He argued the evidence instead showed his client was "disciplined" and "careful with clients' money" at his Galleon Group of hedge funds.
"He worked hard for Galleon investors to make smart investments," Dowd said. "It's legal to seek out information and trade stock on it. That was Raj's job. That was his duty."
The jury heard more than 45 audio recordings during seven weeks of testimony in what authorities have called the broadest use of wiretaps ever in a white-collar case.
The government also relied on the testimony of a parade of cooperators it says were corrupted by Rajaratnam, including a disgraced technology industry executive and analysts. Prosecutors also implicated a former Goldman Sachs board member as one of the tipsters, in part by calling Goldman chairman Lloyd Blankfein to testify the tapes showed that the board member violated confidentiality policies.
The defense attacked the credibility of the cooperators, who pleaded guilty to various securities charges and took the witness stand to save their own skins.
"Their testimony is unreliable and worthless," Dowd said while his 53-year-old client sat quietly on a bench behind a team of attorneys crowded around the defense table. "When the government came knocking, they blamed it all on Raj."
Authorities have said Rajaratnam made profits and avoided loses totaling $68 million from illegal tips. Galleon, prosecutors say, became a multibillion-dollar success at the expense of ordinary stock investors who did not have the access to secrets about the earnings surprises of public companies and early word of mergers and acquisitions.
The defendant had the illegal advantage of "trading on tomorrow's news today," Brodsky said.
Brodsky repeatedly referred to the audio evidence, telling the jury, "Let's go to the tapes," and playing incriminating segments. He argued that the tapes showed that insider trading _ and orchestrating cover-ups _ was business as usual for Rajaratnam.
The prosecutor played one 2008 tape on which another hedge fund manager who has pleaded guilty, Danielle Chiesi, frets, "I'm a little nervous because you know people are going to investigate me. I really a believe that."
Rajaratnam advises her to buy 1 million shares of tech stock on an inside tip, then sell 500,000 of those shares _ a tactic prosecutors say was used to throw regulators off the trail. In another instance, about 30 minutes of calls with an Intel tipster scored Rajaratnam a $2 million windfall on the computer chip-maker's stock, Brodsky said.
"That may be an easy way to make money ... but it's not legal, and it's cheating," the prosecutor said.
Rajaratnam's attorney countered by arguing that the tapes only reveal he was doing his duty by asking questions about information already circulating in the "real world" of high finance. He accused the government of misleading the jury by claiming information about a company's plans and performance wasn't public until it was formally announced.
"That's ridiculous," he said. "It's a fiction. You cannot convict Raj on a fiction."
The closing arguments came in the only trial so far in a three-year investigation targeting inside trading in the hedge fund industry.
The probe has resulted in more than two dozen arrests and 19 guilty pleas from former hedge fund traders and employees of public companies who Brodsky said were corrupted by Rajaratnam's lust for illegal profits. It also has led to a second investigation aimed at consultants in the securities industry who pass off inside information as the product of legitimate research.
Rajaratnam, born in Sri Lanka and educated at the University of Pennsylvania's prestigious Wharton School, has pleaded not guilty to conspiracy and securities fraud and remains free on $100 million bail. The Galleon funds shut down after his October 2009 arrest.
At trial, Blankfein testified about an Oct. 23, 2008, Goldman board meeting in which board members were told that the investment bank was facing a quarterly loss for the first time since it had gone public in 1999. He also said a trusted board member with a solid reputation, Rajat Gupta, was on the call.
Prosecutors say phone records show Gupta called Rajaratnam 23 seconds after the meeting ended, causing Rajaratnam to sell his entire position in Goldman the next morning.
"A great reputation doesn't give you a free pass to break the law," Brodsky said of Gupta.
Gupta has not been charged criminally in the Galleon probe. He has denied related civil charges brought by the Securities and Exchange Commission.
As the government highlighted the wiretaps, a federal judge presiding over an insider trading case involving one of Rajaratnam's co-defendants issued a written decision criticizing investigators for "apparently voyeuristic intrusion" that occurred when investigators lingered on wiretaps too long, listening to intimate aspects of his relationship with his wife.
Investigators are supposed to hang up if a call isn't pertinent to their probe. U.S. District Judge Richard Sullivan noted that prosecutors say they have assembled a committee of supervisors in their office to review all aspects of procedures concerning the supervision of wiretaps.
Defense closing arguments in the Rajaratnam case were expected to conclude Thursday, followed by a government rebuttal.