Prosecutors Seek To Block Evidence Of Denials In Galleon Case

Mar 22 2011 | 1:33pm ET

In an ironic twist, prosecutors in the Galleon Group insider-trading trial are seeking to exclude some of the wiretaps at the center of their case.

The tapes in question are from January, some 15 months after Galleon founder Raj Rajaratnam's arrest. The prosecution filing sheds some light on Rajaratnam's defense strategy; his legal team may be planning to use the wiretap, on which a Galleon trader denies knowing anything about insider-trading at the hedge fund.

Prosecutors also asked U.S. District Judge Richard Holwell to exclude denials made by one Joe Liu, made to the Federal Bureau of Investigation. Liu, an analyst in Taiwan, is alleged to have helped Rajaratnam get inside information about Synaptic's earnings in early 2009.

The U.S. Attorney's office in Manhattan on Monday told Holwell that he should block the defense from using a Jan. 14 wiretap, in which Adam Smith, a former Galleon trader, sought to get another Galleon trader to admit to wrongdoing.

Smith himself would plead guilty less than two weeks later.

On the call, Smith asks Ian Horowitz about why Galleon bought shares of Starent Networks Corp., which was about to be acquired by Cisco Systems.

"I had no idea, like zero clue, that they were going to be acquired," Horowitz said. "I had no idea."

"Yeah, but they probably did, right?" Smith asked of Rajaratnam and other Galleon employees.

"I have no idea," Horowitz said. "It's not, but they never relay that to me. They never said to me, 'Oh, this is....' It was never like that."

Later on the tape, Horowitz indicates that he thinks Smith is trying to get him to incriminate himself.

"Like, I feel that you're… the questions you are asking me are like you are tapping me on the phone trying to get me to say some things," Horowitz said.

"Are you serious?" Smith asked. "Dude, come on."

"Yeah," Horowitz responded.

"You kidding me?" Smith asked again.

"That's why I ask, like, I don't get it," Horowitz said.

"Well, I, I'm telling you 100% that's not the case," Smith said.

"The relevant recordings were made at the direction of the FBI by Adam Smith on Jan. 14, 2011, just after Smith had begun cooperating with the government," prosecutors wrote to Holwell. "The fact that the government's efforts to develop evidence against Horowitz—in the form of an undercover recording—did not work is entirely inadmissible. Indeed, it is not at all surprising that the effort failed, in light of Horowtiz's knowledge of the highly public investigation."

Prosecutors made the same point about Liu.

"It is not surprising that Horowitz and Liu denied knowledge of wrongdoing, given that the government's investigation was fully public at the time of these statements." Prosecutors said both sets of statements were hearsay evidence and that if Rajaratnam's team want them admitted, they should call Horowitz and Liu to the stand. Smith is expected to testify for the prosecution later in the trial.

In Depth

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


U.S. Trust's Beard: The Rapid Growth of the Art Lending Industry

Oct 7 2016 | 10:55pm ET

Alternative investment managers have emerged as some of the most significant art...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...