Tapes In Rajaratnam Trial Allege Affair, Cover-Up, Third McKinsey Player

Mar 15 2011 | 1:09am ET

Prosecutors at the Raj Rajaratnam insider-trading trial yesterday played more than a dozen taped conversations between the Galleon Group founder and such trial figures as Danielle Chiesi, his brother Rengan and the government's star witness, Anil Kumar.

The conversations with Chiesi were played as Kumar testified that she and Hector Ruiz, the former CEO of Advanced Micro Devices, had an affair.

Kumar said during his second day of testimony that Rajaratnam told him that "someone on Wall Street… had an intimate relationship with my client, AMD, who was able to provide more information than I was." That "someone," Kumar said, was Chiesi, a former executive at hedge fund New Castle Partners whose affair with another source, former IBM executive Robert Moffat, has already come out in the case.

Kumar said that Rajaratnam told him to warn Ruiz that Chiesi "talks to a lot of people" and that he should "stop doing this."

"I said, 'Raj, you've got to be kidding. He's a senior client; he's older than me,'" Kumar testified. "I said I couldn't do it, I couldn't say, 'I heard you were having a relationship with Danielle."

Ruiz's spokesman, Andrew Merrill, denied that his client had had an affair with Chiesi, who has pleaded guilty in the case.

"Any suggestion that the relationship was intimate is untrue," he said.

Untrue, perhaps, but judging from the taped phone calls, not necessarily out of character for Chiesi.

On an Aug. 15, 2008, phone call in which he allegedly passed a Kumar tip to Chiesi, Rajaratnam told Chiesi, "We've got to keep this radio silence," adding, "not even to your little boyfriends."

"I don't have any," Chiesi shot back.

At other times, Chiesi greeted Rajaratnam with a "Hey, baby," or "Hi, babe." Other coy lines included, "I love you" and "I love that."

The two were also not above a little flirting. Discussing Moffat, Chiesi told Rajaratnam, "He's more like a geeky type. He's not charismatic like you are."

At other times, she expressed a prescient concern about the future.

"I know everybody's being investigated," she said on one call. "Do you think I could buy it here? Honestly? And I'm glad that we talk on a secure line. I appreciate that." The call, obviously, was being recorded by the Federal Bureau of Investigation.

On the same call, she later said, "I'm a little nervous because, you know, people are going to investigate me. I really believe that."

While the tapes featured several well-known names, one introduced a new one: Former McKinsey partner David Palecek, the third former McKinsey partner to be dragged into the case.

Palecek was a business school classmate of Rajaratnam's brother Rengan at Stanford University. Jurors heard a taped phone call between the brothers in which Rengan said Palecek told him to "buy as much" AMD stock "as you can as soon as you can." The two agreed that they should get closer to Palecek, and Rengan suggested Galleon hire Palecek's wife.

"We want access to him," Raj Rajaratnam said. "He is a little dirty, right?"

"He's definitely thinking about playing ball," Rengan responded.

Palecek died last year at the age of 37 of a virulent staph infection.

"David was not dirty or even a 'little dirty,' Palecek family lawyer Catherine Redlich said. "He was a man of great integrity."

"What the tape does not reflect is that Mr. Palecek never agreed to 'play ball' with the Rajaratnams, never received money from them and never agreed to put his wife on the Galleon payroll."

The government also played tapes that it claims show Rajaratnam's planned cover-up of his illegal trading: an "e-mail trail" to demonstrate that his investment ideas were not, in fact, based on insider-information.

On April 22, 2008, Rajaratnam called Galleon managing director Krish Panu after speaking with Kumar, who had allegedly told him about a Spanvision Inc. top. The conversation then moved, according to prosecutors, to planning the cover-up.

"I'll send you an e-mail and say, 'Have you guys thought about Spansion?'" Rajaratnam said.

"Have a corporate record," Panu said.

"Yeah, we just have an e-mail trail," Rajaratnam responded.

On another call about Spansion, Rajaratnam told two Galleon associates, "Keep conversations just personalized to the three of us, you know, so that we just protect ourselves."

"You just have to be careful, right?" Rajaratnam told one former Galleon employee. "We just have a e-mail trail, right, that uh, I brought it up."

"That's good," the employee responded.


In Depth

High Time For A Cannabis Hedge Fund?

Sep 30 2014 | 7:07am ET

Launching a hedge fund is always a gamble, but Leslie Bocskor's decision to launch...

Lifestyle

Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Appraisal Ratio Key To Evaluating Hedge Funds And Other New Investments

Sep 29 2014 | 3:07pm ET

As a former finance professor Peter Hecht experiences heartburn every time he hears...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

September 2014 Cover

High frequency market making

High frequency trading is not evil, it is not a conspiracy and it really is not new; it is the natural evolution of the professional trading community making markets, providing liquidity and hopefully...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.