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The Globe and Mail

Rajaratnam trial was a drama worthy of Hollywood

Galleon hedge fund partner Raj Rajaratnam (C) departs Manhattan Federal Court past a scrum of reporters and photographers after a bail hearing Nov. 5, 2009 in New York.

Mario Tama/2009 Getty Images

It had all the drama of a Hollywood blockbuster.

The government's case against Raj Rajaratnam, the hedge fund billionaire convicted on insider trading charges, featured friends-turned government witnesses, a sassy blonde trader fluent in locker room language, and the disclosure of secrets from the highest levels of the corporate world.

The government's most steady witness also provided some of the most vivid testimony. Anil Kumar, a former McKinsey director and classmate of Mr Rajaratnam at the University of Pennsylvania's Wharton business school, brought the jury into their fast-paced world of fashionable parties, exclusive resorts and corporate intrigue.

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Mr. Kumar testified that the alleged inside trading scheme began following a gala in New York City, when Mr. Rajaratnam pulled him aside and offered to pay him for his insights. He also told the jury of a trip to Miami Beach, where he and Mr. Rajaratnam sat chatting on deck chairs until they were interrupted by a phone call.

Mr. Rajaratnam walked away to take the call and when he returned, said that Cisco Systems was in talks to acquire Starent. Mr. Rajaratnam also said he was disappointed to learn that a former employee was wearing a wire on behalf of the government and advised Mr Kumar to use pre-paid cell phones, which would not be traceable.

That conversation came only days before both men were arrested at dawn by FBI agents.

The government's strongest evidence, and the biggest hurdle for Mr. Rajaratnam's lawyers to surmount, came in the form of 45 recorded phone conversations, in which Mr. Rajaratnam and other insiders swapped information, discussed recruiting another corporate insider to provide information and plotted ways to avoid detection.

Starring in several calls was Danielle Chiesi, a brassy former hedge fund trader, who used R-rated language as she told Mr. Rajaratnam about her efforts to obtain corporate information. In the tapes, she worried about being investigated, bragged that she played a source like a "finely tuned piano" and sought advice from Mr. Rajaratnam.

The seven-week trial also featured an unusual amount of sparring between witnesses and lawyers. Richard Schutte, a former president of Galleon, even refused to agree with a prosecutor that investors want investment managers to make good returns.

In a made for television moment, Mr. Schutte, who now manages a $35-million hedge fund, acknowledged during cross examination by the prosecutor that he received $25-million in the months leading up to the trial from Mr. Rajaratnam and his family. He testified that Mr. Rajaratnam's family gave him $15-million to manage just nine weeks before the trial's start. He later said he wasn't being paid for his testimony.

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Another dramatic moment when Mr. Rajaratnmam's lawyer, John Dowd, asked Lloyd Blankfein, chief executive of Goldman Sachs, to identify where in the minutes of a group board meeting it stated that the directors discussed merging with a commercial bank.

Mr. Blankfein said the document was several single-spaced pages and Mr. Dowd told him confidentially to take his time. After a scan lasting a minute, Mr. Blankfein said he found the reference on page five, which seemed to surprise Mr. Dowd.

Prosecutors have alleged Rajat Gupta, then a Goldman director, passed inside information to Mr. Rajaratnam just minutes after board meetings concluded. Mr Gupta has been sued by the Securities and Exchange Commission for allegedly tipping Mr. Rajaratnam but denies wrongdoing. He has not been charged criminally.

Mr. Rajaratnam's defence, which attacked the credibility of the three witnesses cooperating with prosecutors, seemed to strike its surest blows against Adam Smith, a former Galleon portfolio manager, who pleaded guilty to insider trading. The defence suggested Mr Smith pleaded guilty and agreed to testify only after the government confronted him with his voice caught on tape in late December and threatened him with decades in jail. They tested Mr. Smith's memory about meetings he had with Galleon lawyers last year and called a friend who testified Mr. Smith said he didn't commit all the crimes in his plea agreement.

The jury did not see all that the government hoped to offer and did not hear from a number of star characters in the case. Prosecutors lost their bid to play for the jury a grainy surveillance video capturing Roomy Khan, a former Intel executive who pleaded guilty to insider trading charges, allegedly faxing confidential Intel information to Mr. Rajaratnam. The judge said the tape, from the late 1990s, could not be played for the jury because it was prejudicial.

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