“I shared it with Raj.”
Those five words served as a mantra for Adam Smith, a government witness who took the stand on Tuesday in the insider trading trial of Raj Rajaratnam, the founder of the Galleon Group hedge fund.
Mr. Smith, a former Galleon portfolio manager, is the first former Galleon employee to testify during the trial. He has pleaded guilty to participating in an insider trading conspiracy with Mr. Rajaratnam.
Azam Ahmed and Guilbert Gates/The New York Times Click on the above graphic to get a visual overview of the Galleon information network
Known for his rapier wit around Galleon’s offices, the 39-year-old Mr. Smith was dead serious on the witness stand on Tuesday as he took the jury through four discrete insider trading vignettes involving technology companies. DealBook will have the full report later. For now we’ll focus on the vignette involving Intersil, a chip maker.
Mr. Smith, who joined Galleon in 2002 after a stint as an investment banker at Morgan Stanley, said he developed a relationship with an Intersil executive named Jason Lin who worked in Taipei, Taiwan. Once a quarter, Mr. Smith would travel to Taiwan to meet with Mr. Lin. They initially discussed industry issues and “more qualitative types of information,” said Mr. Smith.
But over time, Mr. Smith testified, he asked Mr. Line to be more specific. “There did come a time when he was able to give me Intersil’s quarterly revenue numbers,” Mr. Smith said.
Mr. Smith, who covered Intersil for Galleon, said this information was most useful “when it varied from Wall Street consensus.” He said he passed the information on to Mr. Rajaratnam.
“Why?” asked Andrew Michaelson, the prosecutor.
“I was getting an edge on a company I covered,” Mr. Smith said. “My motivation was to improve the profitability of my firm and to help Raj.”
Mr. Michaelson asked Mr. Smith to define “an edge.”
Mr. Smith said it was a source of information that could inform a decision about buying and selling a stock. “It’s the key component to arbitraging consensus, which was essentially our strategy,” he said. “Whenever an event would occur that would vary from consensus, we would want an edge.”
Mr. Lin’s information would help Mr. Smith, a Harvard Business School graduate, in his research on Intersil. It would help “build my Excel model,” Mr. Smith explained. “I would plug in the revenue and estimate profit and loss.”
When Mr. Michaelson asked Mr. Smith if he also did actual security analysis on Intersil, Mr. Smith said that he did but that he really did not consider the confidential revenue numbers provided by Mr. Lin to be legitimate research.
“Getting the number is more like cheating on the test,” Mr. Smith said.
Intuiting that Mr. Smith’s simile could have resonated with the jury, Mr. Michaelson continued.
“Did you do your homework on Intersil?” he asked.
“Yes,” Mr. Smith said.
“Did you also cheat on the test?”
“Yes,” Mr. Smith said.
Article source: http://feeds.nytimes.com/click.phdo?i=52019a8d4aabb646ce34adbf3d8b9e23
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