December 4, 2022

DealBook: Galleon Chief’s Lawyer Presses His Argument for Acquittal

9:13 p.m. | Updated

Raj Rajaratnam’s lawyer on Thursday concluded his defense with the argument that Mr. Rajaratnam took advantage only of publicly available information

All of the inside information that Mr. Rajaratnam, the co-founder of the Galleon Group hedge fund, is accused of trading on, said his lawyer, John Dowd, was already public in the form of news articles and research reports speculating about deals and events.

“He took advantage of public information available to the whole world, and that’s why you must acquit,” Mr. Dowd told jurors.

The defense’s assertion stands in stark contrast with the insider trading case that federal prosecutors have endeavored to build over the last two months, using trading records, cooperating witnesses and most important, secretly recorded phone calls.

Mr. Dowd finished his closing statement on Thursday, and the case is expected to go to the jury in Federal District Court on Monday.

Raj Rajaratnam, the Galleon Group's co-founder, leaving federal court on Thursday as his insider trading trial heads toward a conclusion.Louis Lanzano/Bloomberg News Raj Rajaratnam, the Galleon Group’s co-founder, leaving federal court on Thursday as his insider trading trial heads toward a conclusion.

Mr. Rajaratnam, who is accused of pocketing more than $50 million in illicit profits, faces up to 25 years in prison if convicted.

During the government rebuttal on Thursday, jurors were asked to imagine themselves as the average investor, with the flurry of information that surfaces every day on the Web and in their e-mail boxes.

“Now imagine that you have all that plus you have an insider at a bunch of companies,” Jonathan Streeter, the prosecutor, told them. “Which do you think has a huge advantage?

That dispute between what constitutes insider information versus rumor and speculation remained the focus in the final days of the trial. Both sides are trying to sway jurors about the importance of knowing details of things like mergers and earnings before companies make their announcements.

Mr. Dowd spent time on Thursday disparaging the government’s cooperating witnesses, who pleaded guilty and testified about the details of the scheme.

Rajiv Goel, a former Intel executive who took the stand to tell jurors of tips he secreted to Mr. Rajaratnam, was “belligerent, hostile, uncooperative and downright bizarre,” Mr. Dowd said.

At times, Mr. Dowd seemed to take their cooperation personally, calling the arrangement one had with the government a “sweetheart deal” to avoid prison time for lying about Mr. Rajaratnam.

The Galleon networkAzam Ahmed and Guilbert Gates/The New York Times Click on the above graphic to get a visual overview of the Galleon information network.

And just as the government used recordings and transcripts of conversations to bolster their argument to jurors, so, too, did Mr. Dowd. Though he played just one recorded call, Mr. Dowd relied heavily on transcripts from the trial to highlight what he considered inconsistencies in testimony from government witnesses.

“Thank God for cross-examination,” said Mr. Dowd, who said that several of the cooperators had cracked when subjected to questioning.

Mr. Dowd spoke in a gravelly monotone with few gestures, his glasses perched atop his nose. Unlike Reed Brodsky, the prosecutor, who shouted and roamed before the jurors with an intense energy during his summation on Wednesday, Mr. Dowd had an avuncular manner and remained behind his lectern, reading notes from a binder.

Mr. Dowd tried to cast doubt on the government’s interpretation of a secretly recorded conversation in September 2008 during which Mr. Rajaratnam told his trader that he had purchased Goldman stock because “I got a call saying something good is going to happen to Goldman.” The government said that Mr. Rajaratnam was referring to Warren E. Buffett’s $5 billion investment in Goldman — news that a member of the bank’s board was accused of leaking to Mr. Rajaratnam.

“You can’t take the words ‘something good’ and turn them into Warren Buffett,” said Mr. Dowd, who argued that Mr. Rajaratnam had bought Goldman shares because of the prospect of a government bailout of the banks.

Mr. Dowd also criticized the prosecution for not calling some of Mr. Rajaratnam’s supposed accomplices to the witness stand. The government has accused Mr. Rajaratnam of engaging in an insider trading conspiracy with Roomy Khan, a former Intel employee and a trader who has pleaded guilty to passing tips to Mr. Rajaratnam from corporate insiders. But the government did not ask Ms. Khan to testify, instead relying on trading and phone records to prove its case.

“This is an insider trading conspiracy, but you haven’t heard from any of the insiders or any of the co-conspirators,” Mr. Dowd said.

He repeatedly reminded jurors that there needed to be only a reasonable doubt for them to acquit his client — even in instances when bits of the supposed tip were not yet public.

“You can’t convict Raj by splitting hairs,” he told jurors.

Mr. Dowd also sought to dismantle the government’s accusations that Mr. Rajaratnam tried to cover up his crimes. He said prosecutors were “grasping at straws” by showing an instant message in which Mr. Rajaratnam told an associate to call him instead of sending him an e-mail.

“You’ve never sent an e-mail to someone and said, ‘Call me?’ ” he asked jurors.

Mr. Streeter, the prosecutor, whose rebuttal began near the end of Thursday’s session, tried to simplify what has become an increasingly repetitive back and forth between the government and defense lawyers.

He suggested that the stock charts of the companies that Mr. Rajaratnam was said to have obtained inside information from spoke for themselves. He showed charts from Google and PeopleSupport.

Nearly all the charts showed a spike in the company’s price after the incident under scrutiny.

“The principal argument of the defense as far as I can tell is that this information was public,” he said. “The information that insiders had was not public, and the way you know that is those price charts.”

The jury’s patience with the nearly two-month long trial appeared to wear thin. As Mr. Streeter continued his summation past 5 p.m. — the hour at which the court usually breaks for the day — two jurors groaned. Another rolled her eyes and put on her coat. The prosecution continues its rebuttal on Monday. There will no court session on Friday.

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DealBook: For Defense in Galleon Trial, No Time to Rest

Raj Rajaratnam, right, and his lawyer, John Dowd, leave federal court on Monday.Brendan Mcdermid/ReutersRaj Rajaratnam, right, and his lawyer, John Dowd, leaving court on Monday.

I wouldn’t want to be Raj Rajaratnam’s lawyer right now.

As the insider trading case of Mr. Rajaratnam enters its sixth week, the trial has captivated Wall Street as a suspenseful, complex financial version of “Law Order” that could have a cliffhanger ending.

But John Dowd, his lawyer, could have his work cut out for him persuading the jury. Sitting in the gallery on the 17th floor of the federal courthouse in Manhattan on Monday — seats away from Mr. Rajaratnam — it struck me just how much evidence they have to overcome.

“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” Mr. Rajaratnam said to an employee on a taped telephone conversation that was played for the jury.

In another recorded call, he is heard telling a friend that he bought a certain stock because he was sure it would go up.

Why was he so certain? “We know because one of our guys is on the board,” he explained.

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And in another tape-recorded call, Danielle Chiesi, a hedge fund executive, told Mr. Rajaratnam very specifically about the coming earnings of Akamai Technologies: “They’re going to guide down. I just got a call from my guy.”

When this case was first brought, Wall Street was aflutter with anxiety that the government was expanding the definition of insider trading. The trial was seen as a moment that would show how the government planned to police modern Wall Street as more and more information poured into the system. It was supposed to redefine the law around “expert networks,” those paid services that investors use to gain an edge, and “channel checks,” which investors use to ferret out information from suppliers and clients.

But the case against Mr. Rajaratnam is not about a new form of insider trading. It is whether what happened was old-fashioned insider trading — passing blatant, black-and-white tips that gave a trading advantage. Over and over, witnesses with inside information testified to breaking the law to provide Mr. Rajaratnam with details of coming announcements and transactions.

Despite the Galleon Group’s $6 billion under management, high-priced real estate and supposed analysts, witnesses have painted a picture of Mr. Rajaratnam’s firm as one that disregarded insider trading laws as standard operating procedure. So far, the defense has hardly tried to refute the evidence; instead, it has relied on an effort to confuse the jury about what constitutes inside information.

I attended court the day that Mr. Rajaratnam’s lawyer questioned Lloyd C. Blankfein, Goldman Sachs’s chief executive, about information from a board meeting that prosecutors say was relayed to Mr. Rajaratnam by Rajat Gupta, a Goldman director at the time.

The lawyer quizzed Mr. Blankfein about whether Goldman’s board ever discussed issues that were in the public domain, as if to suggest that the line between inside information and public information was never a bright line. The lawyer trotted out an example: Goldman’s board discussed Lehman Brothers’ bankruptcy after the bankruptcy had been announced. Gotcha!

Mr. Blankfein tried to explain that Goldman’s board often discussed news that had been reported in the press, but that the board’s internal conversations about that news was confidential and could be important, material information if shared with the public.

Why the judge allowed such a line of interrogation was a question asked by spectators in the courtroom.

On Monday, the defense was back with a new line of questioning. It sought to undermine the credibility of the prosecution’s witness, who had pleaded guilty to insider trading at Galleon. When questioned by a lawyer before his crimes were exposed, the defense pointed out, the witness had said that he “was not aware of any insider trading at Galleon.” Almost no one, of course, would have admitted to that before having been charged.

This case differs from the trials of L. Dennis Kozlowski, John Rigas and others that I have covered.

In those trials, the outcome was not clear because much of the evidence was murkier. There were no tapes. Documents presented by the two sides seemed to contradict each other. Both Mr. Kozlowski and Mr. Rigas were convicted and sentenced to jail terms, but before their guilty verdicts came, it was not certain that the government’s “proof” would be enough.

Why Mr. Rajaratnam decided to fight the case, with so many witnesses in taped conversation with him, is a mystery.

I am left thinking he must have decided that he had nothing to lose and that if his lawyers could persuade just one juror, it would be worth going to trial. But I’m still glad I’m not his lawyer.

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