Fund manager Raj Rajaratnam made $1 million in two minutes of frantic calls after receiving an inside tip about a big investment in Goldman Sachs at the height of the financial crisis, prosecutors said this week at the Galleon founder's insider trading trial.
In the biggest Wall Street insider trading case since the 1980s, U.S. prosecutors have persistently pressed phone tap evidence that Rajaratnam had a direct line to his friend and then Goldman Sachs director, Rajat Gupta, who leaked bank secrets to him. The trial is in its fourth week and could last until the end of April.
On Wednesday, the Manhattan federal court jury heard another FBI phone tap to support government allegations Rajaratnam knew a day before it was announced in September 2008 that Goldman would receive a $5 billion investment from Warren Buffett'sBerkshire Hathaway.
In the phone tap of a call on Sept. 24, 2008, between Rajaratnam and his personal Galleon trader, Ian Horowitz, he is heard describing his efforts the previous day to buy shares two minutes before the 4 p.m. stock market close.
"I got a call at 3:58, right?" Rajaratnam said, referring to the September 23 conversation with Gupta about a Goldman board meeting that day. "Saying something good might happen to Goldman, right?"
But when he then called Galleon, the first trader he reached was unable to complete it.
"I, so I told Ananth to buy some, he was fucking around, he can't, you know. So I went to Gary and just buy me, right?"
The full name of trader Ananth was not known and the other person was Gary Rosenbach, then a Galleon manager.
Below, you can listen to the most recent undercover audio recordings played in court this week.
Rajaratnam discussing inside information regarding Goldman Sachs earnings:
The phone tap of a call on Sept. 24, 2008, between Rajaratnam and Ian Horowitz:
Find more of the revealing Rajaratnam tapes admitted since the trial began later in this story.
Goldman Sachs CEO Blankfein Testimony, Plus More Undercover Audio
Jurors in the insider trading trial of hedge fund mogul Raj Rajaratnam heard from one of the biggest names on Wall Street and listened to more juicy undercover tapes this week, as the government's case kicked into high gear. The trial, wrapping up its third week, is expected to last at least another month.
On Wednesday, Goldman Sachs Chairman and CEO Lloyd Blankfein drew an overflow crowd, when he testified for the prosecution that a former board member, Rajat Gupta, violated the firm's code of conduct by discussing confidential board deliberations with Rajaratnam.
Gupta, who has been cited in an administrative proceeding by the SEC, denies wrongdoing and has sued the agency. Jurors got an encore presentation of the undercover recording of Gupta telling Rajaratnam about a 2008 board meeting in which Goldman Sachs directors talked about buying a bank like Wachovia or an insurance company like AIG.
Jurors also heard from former Intel executive Rajiv Goel, a former close friend of Rajaratnam's who has pleaded guilty to supplying advance tips about the chip maker's profits as well as upcoming deals.
Thursday's testimony by Goel included questioning about an Intel joint venture with Clearwire . Prosecutors say Rajaratnam was trading on inside information about the pending deal, but lost his edge when word of the talks got out.
Prosecutors played a March 25, 2008 phone conversation between Rajaratnam and his brother Rengan Rajaratnam in which Rengan was concerned that the media had picked up on the deal.
Rengan: We're F***ed man
Raj: Huh ?
Rengan: It just hit the Wall Street Journal
Raj: What's that ?
Rengan: The Clearwire stuff
Raj: Uh huh
Rengan: It's all over the Wall St Journal
Raj: OK... What price does it say?
The Intel-Clearwire venture was announced a little over a month later.
The defense says Rajaratnam traded only on public information and expert analysis. For every stock in question, defense attorneys have offered news articles and press releases in an attempt to show that Rajaratnam was trading not on inside tips, but on information that was available to the general public.
Defense lawyers are also attacking the credibility of cooperating witnesses like Goel, who are the heart of the government's case. On cross-examination, defense attorney Terence Lynam questioned Goel about Swiss bank information omitted from his tax returns. Defense attorneys used a similar line of questioning against another cooperating witness, former McKinsey & Co. Senior Partner Anil Kumar.
The trial has not been without lighter moments.
During Thursday's cross examination, Lynam attempted to portray the Rajaratnam/Goel friendship, which spanned nearly 20 years, as one in which the two often joked around.
Lyman asked Goel if he understood that Rajaratnam was joking when he said he wanted to kiss Goel. Goel replied "I hope he was or I've had him wrong the whole time".
Laughter broke out in the courtroom.
The trial resumes on Monday. Until then, here are more of the recordings admitted into evidence this week. And you can find more of the Rajaratnam tapes admitted since the trial began later in this story.
Intel executive Rajiv Goel gets nervous about talking to Raj Rajaratnam on a cell phone that might be tapped. Turns out his instincts were right.
Rengan Rajaratnam calls his brother Raj. Word of a potential deal between Intel and Clearwire--which they allegedly were trading on--has gotten out. "We're f***ed," Rengan says.
Raj Rajaratnam is trying to get ahold of Rajiv Goel.
Rajiv Goel calls Raj Rajaratnam back within five minutes, even though Goel is sick at home. Rajaratnam is trying to get more information about the Intel/Clearwire joint venture, which is known as WiMax.
Rajiv Goel calls Raj Rajaratnam to tell him that "stuff is not happening as planned."
Raj Rajaratnam and Rajiv Goel talk about a proposed investment by Intel's pension plans in Rajaratnam's Galleon funds. Goel is hoping to get a little credit for the deal, saying to Raj, "Tell him that you're not interested in taking Intel's money...unless Rajiv okays it."
Rajiv Goel tells Raj Rajaratnam the $10 million investment "has been approved" (the deal ultimately did not go through).
(Additional reporting by Jim Forkin, Cat Corrigan and Laura Kurinsky)
More Dramatic Audio and Trial Details
The federal criminal trial of billionaire hedge fund mogul Raj Rajaratnam is the centerpiece of what prosecutors call the largest hedge fund insider trading investigation in history. But what truly sets this case apart from previous insider trading cases are the tapes—dozens of secretly recorded conversations that prosecutors say are proof Rajaratnam was part of a massive conspiracy.
Rajaratnam, 53, has pleaded not guilty to nine counts of conspiracy and five counts of securities fraud. Prosecutors say that between 2003 and 2009 when he was head of Galleon Group, Rajaratan made at least $45 million from illegal inside tips from corporate executives, board members, consultants and others.
Defense attorneys fought hard to keep the tapes out of the case, saying the wiretaps were illegally obtained. Even so, the defense insists the tapes show nothing more than a diligent trader conducting careful research. Lead defense attorney John Dowd of Akin Gump Strauss Hauer & Feld told jurors the tapes are “snippets” that the government is taking out of context.
Whether or not the recordings prove criminal activity, they offer an unprecedented glimpse of Wall Street in its most unguarded moments. Each of the recordings presented here has been admitted into evidence in the Rajaratnam trial. Some of the language and subject matter is for mature audiences.
Anil Kumar calls Raj Rajaratnam from a Tokyo taxi. He tells Rajaratnam that Lenovo is in advanced talks to buy Fujitsu's PC business, and updates Raj on his client, Advanced Micro Devices , which he says will be "bleeding" because of a reduction in revenues.
Galleon employee Adam Smith calls Rajaratnam to check in and talk about an impending transaction regarding semiconductor component maker Vishay.
Rajaratnam calls Kumar. They talk about the possibility India’s Reliance Industries might put out a term sheet for Spansion, AMD’s former memory chip division and one of Kumar’s clients at McKinsey. They also discuss a “smaller deal”: Spansion is considering selling its assets in the Far East.
Rajaratnam calls Galleon employees Krish Panu and Kris Chellam from Washington and tells them about the possible Spansion deals; he tells the two, “you just have to be careful.”
Rajaratnam calls Kumar to ask for advice on how to compensate Rajat Gupta, the former McKinsey chief whom he’s tapping to be chairman of his new fund, Galleon International. They discuss the potential conflicts this could pose for Gupta’s fund, New Silk Road (NSR) in which Rajaratnam also was a partner, and how Gupta’s family “suffers” because of his work.
Kumar calls Rajaratnam and voices his concerns about the re-negotiation of their consulting agreement; Kumar wants to get it resolved so he can reinvest in the Galleon fund by July 1.
Anil Kumar calls Rajaratnam, who is on a train. Rajaratnam encourages Kumar to call Galleon the next day to check on their consulting agreement.
Rajaratnam calls Rajat Gupta from his Connecticut home. Gupta divulges a “big discussion” that was held at a Goldman Sachs board meeting, and the pair discusses Rajaratnam’s consulting deal with Kumar.
Rajiv Goel, an Intel employee, calls his friend Rajaratnam to discuss a deal that has been approved.
Kumar calls Rajaratnam and tells him that AMD and Abu Dhabi-owned company Mubadala have “shaken hands” on a deal for the Abu Dhabi sovereign wealth fund to invest in AMD’s foundry company. They also discuss Rajat Gupta’s hectic work schedule and his “personal family crisis.”
Rajaratnam calls hedge fund manager Danielle Chiesi to tell her that AMD and Mubadala have shaken hands on a deal; he also asks if Chiesi has been in touch with AMD CEO Hector Ruiz, with whom Chiesi allegedly had an intimate relationship.
Rajaratnam calls his younger brother, Rengan, to tell him the news about AMD.
Regnan Rajaratnam calls his older brother and describes a meeting he had with his friend and Stanford classmate, David Palecek, a partner at McKinsey and a colleague of Anil Kumar’s.
Regnan calls Rajaratnam again; he wants to get David Palecek on a market research project that McKinsey is doing for Galleon; Rengan says Palecek is “a little dirty,” and “thinking about playing ball.”
Regnan calls Rajaratnam and they talk again about getting Palecek on the McKinsey project and Anil Kumar’s reaction to the suggestion.
Kumar calls Rajaratnam from Dublin. They talk about the volatility in the markets, as well as the deal that would provide AMD with a cash infusion from Abu Dhabi; that deal now won’t be announced until October, according to Kumar. The pair also discusses a McKinsey research project for Galleon.
Rajaratnam calls Galleon employee Ian Horowitz to check in. They discuss the markets, and Rajaratnam tells him that he’ll get a “heads up” on the AMD deal 48 hours before it goes down.
Rajaratnam calls Chiesi to tell her the date for the AMD announcement will be October 7. They remark how happy they are that they talk about these matters on a "secure line." Rajaratnam also remarks how he is a "warrior."
Kumar calls Rajaratnam and warns that there will be “massive” layoffs at eBay , a McKinsey client, the following Monday.
Kumar calls Rajaratnam and asks him to rein in his younger brother, Rengan. Kumar found out that Rengan was revealing details of an AMD/Abu Dhabi deal to his Stanford classmate, McKinsey partner David Palecek.
10/6/08 10:26am (651-T)
David Lau, a Galleon employee in the Singapore office, calls Rajaratnam and they talk about “bloodshed” in the Asian markets. Rajaratnam also talks about the AMD deal with Mubadala, which is to be announced the following day.
10/7/08 1:46pm (654-T)
Rajaratnam calls Rajiv Goel to discuss trades he’s made on Goel’s Charles Schwab account.