Filing: Rajaratnam Brother Removed Notebooks, Engineered Cover-Up

Mar 29 2011 | 2:21pm ET

Yesterday's action in Galleon Group founder Raj Rajaratnam's insider-trading trial took place on paper, rather than on the stand.

In competing filings with U.S. District Judge Richard Holwell, prosecutors and Rajaratnam's defense team battled over what should, and should not, be heard by the jury. The filings offer a glimpse at how both sides plan to handle this week's star witness in the case, former Galleon trader Adam Smith.

Prosecutors focused on Rajaratnam's brother, Rengan. They asked for permission to ask Smith to describe how he "dramatically" walked into his brother's office and removed several notebooks just hours after Raj's arrest on Oct. 16, 2009. Smith said that Rajaratnam kept handwritten notes about stocks.

The testimony would "prove the existence" of a conspiracy and "Rengan's membership in it," prosecutors said.

"It would be impermissibly prejudicial, and of no probative value whatsoever, for the government to elicit testimony suggesting that Mr. Rajaratnam and his brother were concealing evidence," Rajaratnam's lawyer, John Dowd, replied. The notebooks Rengan removed dealt with "Rajaratnam's charitable donations and real property holdings" to assist with Rajaratnam's bail hearing.

Holwell indicated that he was leaning towards barring mention of the notebooks, whose fate is unclear. Neither Rajaratnam nor his brother have been charged with obstruction of justice, and Rengan has not been charged with any wrongdoing of any kind.

Prosecutors outlined several other potential lines of testimony from Smith. Smith, who pleaded guilty to insider-trading in January, is expected to tell jurors that he received confidential information from a Morgan Stanley banker, Kamal Ahmed, who has not been charged with any wrongdoing. According to the filing, Rengan sought to involve Smith in a cover-up.

"Rengan told Smith that, when someone discussed 'Kamal' with Raj, Raj would say it was a reference to Kamal Das, a sell-side analyst (and not Kamal Ahmed, a Morgan Stanley investment banker whom the government intends to prove provided inside information to Smith, which Smith in turn provided to Raj)," prosecutors Jonathan Streeter and Reed Brodsky wrote.

Smith is also prepared to testify that he met Rengan twice last year; on one occasion, Rengan asked Smith "to confirm" that he "was not going to say anything about the notebooks or black book."

Prosecutors' filing on Smith also includes his recollection of a meeting at Galleon several days after Rajaratnam's arrest.

"Raj was non-specific and very emotional, according to the individual," the Federal Bureau of Investigation report about a Feb. 1 interview with Smith. "Raj told the employees that he was a fighter, that he was going to fight," and also complained that "the FBI agents had treated him horribly, would not let him use the bathroom and just kept him sitting there."

Smith may also testify that Rajaratnam told former Galleon trader David Lau on Oct. 24, 2009, that he could "get" Goldman Sachs' fourth quarter performance number before it was made public. Rajaratnam is accused of doing just that, from former Goldman director Rajat Gupta.

Smith also told the FBI that Galleon analyst Joseph Liu passed him confidential information about Asian companies, and talked about the "thrill in having inside info edge."

Prosecutors and defense lawyers took the opposite positions on the matter of a tape of Smith trying, and failing, to get another former Galleon trader to admit he traded on inside information. The government said that Rajaratnam's team shouldn't be allowed to use that tape, or evidence that Liu denied any wrongdoing, unless they call Liu and the former trader, Ian Horowitz, to the stand.

Before Smith can testify, however, both sides must finish with former Intel Corp. executive and Rajaratnam friend Rajiv Goel, who has testified that he passed confidential information to Rajaratnam.

Under cross-examination, Goel sparred with Rajaratnam lawyer Terence Lynam over the value of the information he provided.

In one phone call, Goel tells Rajaratnam that a joint-venture of Intel and wireless company Clearwire Corp. would have a "heavy-hitting board."

"Are you gonna be on it?" Rajaratnam jokes.

"Don't be silly," Goel responds.

"You wanted to show your old business school classmate that you were smarter than him, didn't you?" Lynam asked.

"He's a lot smarter than me," Goel shot back. "Even today."

In the wiretap transcript Lynam showed Goel, Rajaratnam tells his friend, "nobody gives a shit about valuation." Rajaratnam's legal team has tried to show that the confidential information Rajaratnam allegedly received was not material.

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