Raj Rajaratnam might have fared better had he just shut up. His conviction on Wednesday on all 14 counts of securities fraud and conspiracy was anchored in 46 tapped phone calls that prosecutors called "devastating" evidence of insider trading.
The calls -- by turns casual, occasionally profane, and, ultimately, incontrovertible -- showed Rajaratnam chatting easily with friends and colleagues, often about information related to trades he made.
Little did he know that six different federal judges had authorized wiretaps of his phones, starting in March 2008.
"Ah Raj, eBay is gonna do massive layoff on Monday," Anil Kumar, a partner at McKinsey & Co who pleaded guilty in the case, said on October 3, 2008, a Friday.
"They're gonna do what?" Rajaratnam responded.
"Layoffs on Monday."
Sixteen hundred of them, eBay would announce on October 6.
Rajaratnam tried to convince jurors he had many legal sources of information to help him make trades in more than one dozen stocks, such as eBay, Goldman Sachs Group Inc and Intel Corp. But the recordings told a different story.
REPORTS AND RUMORS
The voices of Rajaratnam and his cohorts boomed over loudspeakers in dozens of times during the two-month trial.
One call, from his brother Rengan, came on March 25, 2008, a day after Raj Rajaratnam had bought 125,800 shares of Clearwire Corp. Prosecutors said Rajaratnam was hoping Clearwire might enter a wireless venture with Sprint Nextel Corp.
Rengan was calling because the Wall Street Journal's website had reported that the venture might happen, which would make it harder for Rajaratnam to trade on tips about the venture prior to a formal announcement.
"We're fucked man," Rengan Rajaratnam said.
"What's that?" his brother asked.
"The Clearwire stuff... It's all over the Wall Street Journal."
"OK. What price does it say?"
Four months later, on the brink of the global financial crisis, Rajaratnam was talking with Rajat Gupta, a former McKinsey chief who sat on Goldman's board of directors.
It seemed that Wachovia Corp, whose new chief executive, Robert Steel, had just left Henry Paulson's Treasury Department, might be a good takeover target for Goldman.
"There's a rumor, that Goldman might look to buy a commercial bank," Rajaratnam said. "And you know this guy Bob Steel, who was a senior guy at Goldman, was undersecretary."
"Yeah, at Wachovia," Gupta answered.
"At Paulson and went to Wachovia and they have a large demand, I mean deposit base and all that... Have you heard anything along that line?"
"Yeah. This was a big discussion at the board meeting."
In another call, three months later, Rajaratnam is heard to tell a colleague, "I heard yesterday from somebody who's on the board of Goldman Sachs that they are going to lose $2 per share" in the fourth quarter.
Prosecutors said that somebody was Gupta, who now faces related charges before an administrative law judge at the U.S. Securities and Exchange Commission. Gupta, who has not been charged criminally, is fighting the SEC case.
RADIO SILENCE AND THE PIANO PLAYER
Another conspirator was Danielle Chiesi, a former trader at the New Castle Funds hedge fund, who pleaded guilty in January to three conspiracy counts.
Prosecutors said recorded calls between her and Rajaratnam showed it was important to be "radio silent," not to tell others they were swapping inside tips.
But they seemed less discreet talking with each other.
"They're gonna guide down," Chiesi told Rajaratnam on July 24, 2008, relaying a supposed tip from a marketing director at Akamai Technologies Inc, then trading above $32 per share and soon to announce its full-year outlook. "I just got a call from my guy. I played him like a finely tuned piano."
"I'm short it, you know that, right?" Rajaratnam answered.
"Yeah, but please just give me a chance to short it a little bit... They think it's gonna go to 25. We just short into this. Short into this."
Six days later, hours after Akamai's announcement sent its shares below $26, Rajaratnam called Chiesi:
"Hi Dani, Raj. I just wanted to say thank you."
