NY insider trading defense: Government misled jury

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Posted: Apr 21, 2011 6:10 PM
NY insider trading defense: Government misled jury

The government has misled jurors about comments made by a wealthy hedge fund manager in a series of phone calls secretly recorded by the FBI, his lawyer said Thursday in closing arguments at a massive insider trading trial.

Prosecutors have made the wiretaps the centerpiece of their case against Raj Rajaratnam, the former head of the Galleon Group accused of making a killing off confidential information about major moves by publicly traded companies.

On one of dozens of tapes played for the Manhattan jury, Rajaratnam cautions another hedge fund manager, Danielle Chiesi, in 2008 that she should "keep radio silence" about an impending multibillion-dollar deal _ "even with your little boyfriends." On another, prosecutors allege, he advises her to deliberately buy and sell stocks to create a pattern of trading that would conceal the scheme.

Defense attorney John Dowd, resuming a closing argument that began Wednesday, accused prosecutors of taking the recorded phone calls out of context.

The trades in question, he said, were based on Galleon's in-house analysis of legitimate public information. He said they also were part of a sophisticated hedge fund strategy _ not a cover-up _ that was closely guarded by Galleon.

Rajaratnam "wanted Chiesi not to blab his positions all over Wall Street," Dowd said. "His trading strategies were valuable in and of themselves."

Assistant U.S. Attorney Streeter argued in a brief rebuttal that the defense defied logic.

"Why would you have to be radio silent about something in the public domain? You need radio silence because you're doing something wrong," he said.

The trial was adjourned until Monday, when Streeter was to resume his rebuttal argument. The jury could begin its deliberations as early as Monday afternoon.

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.

Prosecutors have accused the 53-year-old defendant of routinely using a covert crew of "corporate spies" to get rich off inside trades, while the defense insists he was merely one of the market's savviest investors.

Authorities have said Rajaratnam made profits and avoided losses totaling $68 million from illegal tips. Galleon, prosecutors say, became a multibillion-dollar success at the expense of ordinary stock investors who didn't have access to secrets about the earnings surprises of public companies and early word of mergers and acquisitions.

Prosecutors played another 2008 tape on which Chiesi confides to Rajaratnam: "I'm a little nervous because you know people are going to investigate me. I really believe that."

Dowd sought to downplay the tapes by portraying it as innocent behind-the-scenes banter by high-powered portfolio managers.

"That happens every day on Wall Street," he said. "There's nothing wrong with it."

The government has said other wiretaps backed allegations that Rajaratnam received an inside tip about layoffs at the San Jose, Calif.-based eBay Inc. The defense argued that investors could find the same information online or in the newspaper.

"This is a perfect example of why you can't listen to wiretaps in a vacuum," Dowd said.

Along with the tapes, the government has relied on the testimony of cooperators it says were corrupted by Rajaratnam, including former executives and analysts. Prosecutors also have implicated former Goldman Sachs board member Rajat Gupta as one of the tipsters, in part by calling Goldman chairman Lloyd Blankfein to testify that the tapes showed that the board member violated confidentiality policies by talking to the hedge fund manager about the investment bank's inside finances and strategies.

Dowd argued that there was no evidence showing the calls were sinister. Gupta, he added, had nothing to gain by cheating for Rajaratnam.

"The government wants you to believe that Mr. Gupta threw it all away and ruined his reputation for nothing at all," he said.

Gupta hasn't been charged criminally in the Galleon probe. He has denied related civil charges brought by the Securities and Exchange Commission.

The defense has attacked the credibility of the cooperators, who pleaded guilty to various securities charges and took the witness stand in a bid for leniency. Dowd labeled one of the testifying tipsters, former director at McKinsey & Co. Anil Kumar, "the worst liar to take the witness stand in this courthouse."

A lawyer targeted by the same hedge fund investigation pleaded guilty Thursday, raising to 20 the number of defendants who've done so in the case.

Jason Goldfarb told a Manhattan federal court judge Thursday he made a "horrible mistake" by agreeing to accept money and arrange for secrets about mergers and acquisitions to be passed to a securities trader.

Chiesi is among those who has pleaded guilty but didn't agree to testify.

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Associated Press writer Larry Neumeister contributed to this report.