Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, April 3, 2011

Raj Rajaratnam Trail: Week 4

The fourth week of Raj Rajaratnam's criminal trial for insider trading followed the pattern of the previous weeks.  The goverment presents a witness who testifies he participated in the alleged trading scheme with RR and backs up the testimony with incrminating tapes of phone conversations, and the defense attempts to undermine the witness's credibility.  Most of the week's testimony came from Adam Smith, a former Galleon fund manager who earlier this year pleaded guilty to insider trading and is now cooperating with the government.  Mr. Smith is the first former Galleon employee to testify. 

Smith testified that he cultivated contacts for RR's network of consultants and corporate insiders to access nonpublic information that would give Galleon an edge in trading.  This was the first time that expert-network firms were mentioned, the subject of another federal investigation.  He specifically testified about arrangements to pay cash in exchange for inside information at several companies, including Intel, ATI, and AMD, all companies that have been previously mentioned at the trial.  In addition, Smith testified about RR's "pipeline" to Goldman Sachs via a then-Goldman director, Rajat Gupta.

On cross-examination, the defense continued its consistent defense.  It introduced emails and other communications to show that stock trades were based, not on illegal stock tips, but research based on public information.  The defense also sought to undermine the credibility of Smith by asking questions about any deal he struck with the government for his testimony in exchange for a reduced sentence.

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