Saturday, 20 September 2014
Last updated 1 day ago
Mar 31 2011 | 3:03am ET
The Galleon Group insider-trading trial yesterday turned once again to Goldman Sachs, with prosecutors playing a pair of potentially damning wiretaps of Galleon founder Raj Rajaratnam.
On the first, Rajaratnam is heard telling Galleon trader Ian Horowitz that he heard "something good might happen to Goldman." A month later, he told another Galleon employee that he heard "from somebody who's on the board of Goldman Sachs that they are gonna lose $2 a share."
The former tape, from Sept. 24, 2008, dealt with Berkshire Hathaway's impending $5 billion investment in Goldman Sachs, the latter, from Oct. 24 of the same year, with Goldman's third-quarter results. Prosecutors say Rajaratnam learned about both things in advance from former McKinsey & Co. chief Rajat Gupta, who sat on Goldman's board.
Prosecutors said Rajaratnam earned Galleon $1 million during two minutes of frantic phone calls and trading after getting the Berkshire tip.
"I got a call at 3:58, right?" Rajaratnam said to Horowitz on the Sept. 24 tape, referring to the previous day. "Saying something good might happen to Goldman, right?"
Prosecutors say that Gupta, who has not been charged with any wrongdoing and who denies the allegations, called Rajaratnam with the news seconds after hearing it during a Goldman board meeting.
But with just two minutes before the close of the market, Rajaratnam had to scramble.
"So I told Ananth to buy some," Rajaratnam said of an otherwise unidentified Galleon employee. "He was fucking around. He can't, you know. So I went to Gary and just buy me, right?"
Gary is former Galleon manager Gary Rosenbach.
Rajaratnam ordered some $43 million in Goldman stock, $27 million of which was filled before the close.
The following month, Rajaratnam allegedly used his inside connection to avoid $3 million in losses.
"I heard yesterday from somebody who's on the board of Goldman Sachs that they are gonna lose $2 a share," he told David Lau, a Singapore-based Galleon employee. "The Street has them making $2.50. I'm gonna whack it, you know."
The tapes were played during the testimony of former Galleon portfolio manager Adam Smith, who has pleaded guilty in the case. He testified about Rajaratnam's alleged system for covering up his misdeeds before prosecutors turned him over to the defense for cross-examination.
Rajaratnam's lawyers wasted little time in attacking Smith's credibility with their strongest evidence: A Jan. 14 wiretap in which Smith, at the request of the Federal Bureau of Investigation, sought to get Horowitz to implicate himself.
On the tape, Horowitz accuses Smith of trying to trap him, an allegation Smith denies. Smith also asked whether Horowitz knew that Galleon's trades were based on confidential information.
"You didn't, I didn't, right?" Smith asks.
"It wasn't like we knew anything," Horowitz responds.
"Those were all legitimate," Smith says.
"It was an absolutely impossible situation for me, but I chose to do it," Smith said on the stand yesterday. "It was impossible because anything I chose would be a bad outcome for me…. The FBI put pressure on me to do it, they said they had evidence against Mr. Horowitz."
"You want the jury to believe you were lying then, but telling the truth now?" Rajaratnam lawyer Terence Lynam asked.
"Yes," Smith said.
"Don't you want to avoid a long prison sentence, and the best way is to testify in this case today?" Lynam asked.
"The reason I'm here is because I signed the plea agreement and agreed to testify truthfully," Smith replied.
"If I lie from this day forward, I face the maximum sentence" of 25 years in prison, Smith added. "And if I tell the truth and nothing but the truth, then I have a chance."
Rajaratnam's lawyers also asked Smith about a Galleon laptop that he reported missing after Rajaratnam's arrest in October 2009. Smith told the hedge fund it had been lost, when he actually destroyed it, and an incriminating notebook, and dumped it in upstate New York.
Aug 25 2014 | 11:21am ET
As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…
Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.