Witness In Insider Trial Says Galleon 'Changed Things'

Nov 16 2012 | 12:23pm ET

The first prosecution witness in the insider-trading trial of two former hedge fund managers told the jury yesterday that he told his boss "everything" and that their scam began to unravel after the arrest of Galleon Group founder Raj Rajaratnam.

"It certainly changed things," Jesse Tortora, a former analyst at Diamondback Capital Management, said of Rajaratnam's 2009 arrest. "It made it more difficult. Everybody was anxious. Everybody was nervous. Information became less frequent and less specific. People were a little bit reluctant to talk to each other."

Perhaps no one was more anxious or nervous than Tortora's boss, Todd Newman, who is on trial alongside Level Global Investors co-founder Anthony Chiasson. Tortora said Newman actually read the complaint against Rajaratnam, and was particularly concerned both about the fact that among Rajaratnam's alleged crimes was illegal trading in Dell Inc. shares, which Diamondback also traded, and fears that a Boston-based hedge fund referenced in the Rajaratnam case was Loch Capital Management, whose founders Newman was close to.

Tortora said he convinced Newman to hire a friend of his, Scott Kanowitz, to build a model to track personal computer sales at Dell and similar companies.

Newman "said he'd pulled his trading records in Dell in the quarters mentioned," Tortora said. "He said he felt better because he'd lost money and said, 'We don't have to worry about it anyway, because we used Scott Kanowitz in the trade."

Tortora said that the Galleon arrests also made it hard "to do what I'd been doing" for Newman, not least of all because Diamondback banned communications with expert networks. And that inability led to fights between the two men, including a screaming match in April 2010 that led to Tortora's departure from Diamondback.

"I couldn't get the information and what I got was less specific," Tortora said. "The only time I knew that Todd Newman was happy was when I would give Todd Newman information. I got tired of not knowing which Todd I was working for, of being a mindless data jockey."

It was a point hit on by Newman's lawyer, Stephen Fishbein, on cross-examination. Fishbein alleged that Tortora had been failing at his job even before Rajaratnam's arrest and that Tortora did not make it clear to his boss that the information he was getting was confidential.

"Is that because you were protective of your sources?" Fishbein asked. "Oh, no," Tortora responded. "I told Todd everything."

"It was a very good job," Fishbein said of Tortora's post at Diamondback.

"How would you define that?" Tortora asked.

"You liked being there."

"No, I did not."

Fishbein also attacked Tortora's motive for becoming a cooperating witness.

"Isn't it true you understood that your ticket to freedom was to give evidence against Todd Newman?"

"No, that's untrue," Tortora said.

Fishbein asked Tortora about a recorded phone call with a friend, Danny Kuo, who has also pleaded guilty in the case. On the call, Tortora tells Kuo that the government wants to make Newman "the fall guy." Tortora said he was simply reading a "fictional account" provided by the Federal Bureau of Investigation.

"You pushed the blame to Todd Newman," Fishbein said. "You made stuff up, didn't you?"

"I told the truth," Tortora said.

The back-and-forth apparently did not always hold the jury's attention. U.S. District Judge Richard Sullivan complied with Juror No. 1's request that the jury room be stocked with the highly-caffeinated beverage Red Bull.

The trial resumes on Monday. Tortora will be back on the stand.

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