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Huge insider trading case trial begins

The criminal trial of Galleon hedge fund founder Raj Rajaratnam began with jury selection in a case at the heart of the biggest insider trading investigation in a generation.
Image: Former hedge fund guru Raj Rajaratnam, c
Former hedge fund guru Raj Rajaratnam, co-founder of the Galleon Group LLC, at the center of the largest US crackdown on hedge-fund insider trading in US history, arrives at federal court in Manhattan in New York.TIMOTHY A. CLARY / AFP
/ Source: Reuters

The criminal trial of hedge fund founder Raj Rajaratnam, at the center of the biggest U.S. insider trading probe in decades, began on Tuesday with the judge asking potential jurors whether they could be fair in deciding the case of a wealthy financial executive.

About 150 potential jurors were told by Manhattan federal court Judge Richard Holwell that Lloyd Blankfein and David Viniar -- the Goldman Sachs Group Inc chief executive and chief financial officer -- were on a list of people who might testify or be mentioned during the trial.

Onetime billionaire Rajaratnam, 53, whose Galleon Group hedge funds managed $7 billion at their peak, is in a courtroom showdown with prosecutors that will feature wiretap evidence and the testimony of former friends and associates, some of whom once had top positions in corporate America.

Goldman's shares are among 35 stocks cited in the charges. Rajaratnam is accused of obtaining inside information about the bank from a friend who sat on the company's board. Goldman is not accused of wrongdoing.

Opening statements in the trial will start once the 12-member jury is in place, likely Wednesday or Thursday. The trial is expected to last up to two months.

"We're gonna hear a lot of evidence with a lot of big dollars attached to it," the judge said, asking potential jurors whether they can be fair and impartial.

The list he read to the jury includes the names of 102 people and 50 companies. Many of the companies' shares are technology stocks that prosecutors accuse Rajaratnam of either illegally gathering confidential information about or trading in between 2003 and March 2009.

The government says Rajaratnam made $45 million in illegal profit. He could face a 20-year prison sentence if convicted on the most serious charge of securities fraud. A jury questionnaire makes it clear that the case does not have anything to do with the country's financial problems.

Rajaratnam was mobbed by photographers and TV crews when he stepped from a black suburban SUV and walked into the courthouse on Tuesday morning. Dressed in a brown coat and a suit, he declined to comment.

In the courtroom, Rajaratnam sat at the third table back from the team of seven lawyers he has hired as part of a multimillion-dollar defense.

Chief defense lawyer, John Dowd, argues that prosecutors have broadened the definition of insider trading. A money manager's liberty should not be at risk because he trades on a stock while knowing something about the company, Dowd argues.

Dowd also fought, unsuccessfully, to suppress the FBI's secretly recorded phone conversations from trial.

Since arresting Rajaratnam in October 2009 and announcing criminal charges against 26 former traders, executives and lawyers, the U.S. government has pressed ahead with what it calls the biggest probe of insider trading in the $1.9 trillion hedge fund industry.

Nineteen people have pleaded guilty in the Galleon case. It stands apart from past insider trading probes because of the government's wide-scale use of phone taps.

Prosecutors and regulators have accused former Goldman board member Rajat Gupta of leaking bank secrets to Rajaratnam, but Gupta has not been criminally charged.

It is not known whether Rajaratnam will testify in his own defense after the jury has heard hours of tapes and testimony from as many as six cooperating witnesses.

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.