For Raj Rajaratnam, the Galleon Group founder accused of insider trading, making money on non-public information wasn’t just a small part of his multi-billion dollar hedge fund empire. According to authorities, it was his bread-and-butter.
“He is not the astute student of company fundamentals or marketplace trends that he is widely thought to be,” Robert Khuzami, head of enforcement at the Securities and Exchange Commission, said Friday after Rajaratnam’s arrest. “His is not a master of the universe but rather a master of the Rolodex.”
As the criminal and civil complaints against Rajaratnam make clear, that Rolodex was the key to building the case against the billionaire. According to transcripts of wire-tapped conversations, Rajaratnam routinely traded in non-public information with his alleged co-conspirators in a $20 million insider-trading ring. Rajaratnam—and the five others charged in the case—has denied any wrongdoing.
The charges against Rajaratnam are based on the cooperation of three individuals. Two of them are former Rajaratnam associates, including a former Galleon analyst, Ali Far and Choo Beng Lee, according to The Wall Street Journal. The third, who has not be identified, has struck a plea deal with prosecutors. His taped conversations with Rajaratnam and the other accused conspirators seem to show a pattern of wheeling and dealing with insider information.
The government informant was part of the insider-trading circle. After interviewing for a job at Galleon—a job the witness didn’t get—the witness began feeding Rajaratnam information about three companies the hedge fund chief now stands accused of trading on illegally: Polycom Inc., Google Inc. and Hilton Hotels. One tip—about the Blackstone Group’s Hilton buyout—allegedly earned Galleon $4 million. In exchange for the witness’ information, Rajaratnam allegedly passed on information about about Intel and other companies.
The taped conversations also include potentially damning comments from Mark Kurland and Danielle Chiesi, former executives at a Bear Stearns hedge fund unit, New Castle Partners. Both have been charged in the Rajaratnam case. Last year, Kurland instructed Chiesi to “worry about getting the information.” Authorities say that Chiesi did her best to do so.
In a September 2008 call, Rajaratnam and Chiesi discussed their respective strengths in furrowing out inside information.
“Tell me I’m the best in [Advanced Micro Devices],” Rajaratnam bragged to Chiesi, according to the transcript. “You might know [the AMD executive] or whoever…. I wanted to compete with on in your home yard, in your backyard.” But, Rajaratnam concedes, “I must defer to you on IBM.”
“And Akamai [Technologies], too,” Chiesi offered.
“Akamai, too,” Rajaratnam allowed. “But AMD? Bring it on, baby.”
According to another transcript, Chiesi did indeed have the inside track on Akamai. A family friend at the company allegedly passed on inside information to the New Castle executive. A month after Chiesi allegedly gave the Akamai tipster a tip of her own about AMD, the Akamai executive allegedly returned the favor.
“I’m gonna come visit you in New York, and I’m gonna give you a present,” the Akamai tipster said, according to the transcript. When asked what the present was, the executive said, “information.”
“Well, that is a great present,” Chiesi said.
The alleged members of the scheme and others surrounding were certainly aware of the risks, according to the transcripts and The Wall Street Journal. In the weeks before the charges came down on Friday, some traders, bother inside and outside Galleon began to fear that Far and Lee were cooperating with prosecutors. Rajaratnam and Chiesi were among those who suspected the two men, especially after they closed their successful hedge fund, Spherix Capital, in March. Rajaratnam was an investor in the fund. The Journal also reports that Rajaratnam had recently begun to suspect that his phone might be tapped, fears that proved well-founded.
“Glad that we talk on a secure line,” Chiesi told Rajaratnam in September. As the transcript of the call proves, the line was not especially secure.
Chiesi, who is revealed to be quite fond of adult language in the transcripts, also talked about her fear of getting caught. In August, she told Rajaratnam of an AMD tip, “if it leaks, I think I’m out of business.”
“Because who knows IBM? And who’s in bed with AMD? Put Danielle’s named on the fuckin’ ticket.”