Raj Rajaratnam demanded discipline at his Galleon hedge fund, challenged his analysts at standing-room only morning meetings, and never asked any company for inside information, one of his former top lieutenants testified.
One-time Galleon chief operating officer Rick Schutte took the witness stand at Rajaratnam’s insider trading trial on Monday as the defense presented its side of the case to New York jurors who have heard five weeks of prosecution evidence and witnesses.
Schutte repeatedly used the word “discipline” to describe life at Galleon and called Rajaratnam “very professional” and “educated” about the issues facing companies covered by Galleon funds for its investors.
Asked by a defense lawyer, Michael Starr, whether he ever saw Rajaratnam ask for inside information at the dozens of conferences or company meetings they attended together, Schutte said: “I’ve never seen that, no.”
Schutte and two other witnesses were introduced to the jury as the defense tried to create doubt about the credibility of a government witness, former Galleon employee Adam Smith, and prosecution evidence.
Schutte was hired by Rajaratnam in June 2004 after spending 10 years at Goldman Sachs Group Inc as an analyst on computer hardware and storage.
The government says Rajaratnam cheated to gain an unfair advantage in the stock market between 2003 and March 2009, part of what it has described as the biggest probe of hedge funds on record. Rajaratnam reaped an illicit $63.8 million through tips from highly-placed corporate insiders, prosecutors contend.
Through Schutte, the defense also wanted to tell jurors that Rajaratnam’s trades were guided by a so-called “mosaic theory” — a vast collection of research, analysis and public information, not leaked corporate secrets.
“We had a very disciplined research process. We were very methodical,” Schutte testified.
He said Galleon’s 20 portfolio managers and 35 research analysts received “volumes” of information daily through emails, Instant Messaging, an internal chat room, trade publications, newswires, conferences and regulatory filings.
At an 8:30 daily morning meeting there was “standing-room only in a large conference room” with sometimes 60 attendees.
“Late-comers were fined $25” by Rajaratnam, he said. At the meetings, “he knew what questions to ask. He was always prepared. It was impressive to watch.”
Schutte said employees generally worked at desks with two screens and added jokingly “or three if it was their birthday.”
Rajaratnam, some jurors and spectators in the crowded courtroom laughed when Schutte said Rajaratnam “had a lot of birthdays, no offense … I think he had six screens.”
The prosecution has played dozens of FBI phone taps and testimony of three cooperating witnesses as evidence the Galleon founder traded on tips provided by people who had fiduciary duty not to disclose it.
Two other defense witnesses, Polaris Investment Partners Inc hedge fund owner John Pernell and Robert Hotz, a colleague at law firm Akin Gump Strauss Hauer & Feld LLP, were called in an effort to discredit Smith. Hotz testified that Smith told him “he was not aware of any insider trading at Galleon.”
The defense team has not disclosed whether one-time billionaire Rajaratnam, 53, will testify to tell his side of the story.
The jury could hear closing statements from both sides later in the week.
Sri Lankan-born Rajaratnam, who faces up to 20 years in prison if convicted, has been free on bail since his October 2009 arrest on charges related to trades in companies such as search engine Google Inc chipmaker Advanced Micro Devices Inc and online auction site eBay Inc.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.