NEW YORK (AP) — A one-time billionaire hedge fund founder tapped longtime friends who worked for public companies for secrets to earn tens of millions of dollars in illegal profits, a prosecutor told a jury Wednesday at what the government has described as the biggest hedge fund insider trading trial ever.
"Greed and corruption. That's what this case is all about," Assistant U.S. Attorney Jonathan Streeter told the jury in Manhattan at the start of his opening statement.
Raj Rajaratnam traded on secret information "again and again and again" between 2003 and 2009 as he operated a family of hedge funds at his New York-based hedge fund, Galleon Group LLC, Streeter said.
The trial comes more than a year after prosecutors announced that they had raised the stakes in their effort to root out corruption on Wall Street by using wiretaps for the first time on a wide scale to eavesdrop on the private conversations of insiders at public companies and at hedge funds. Too often, they said, those calls revealed insider information being passed around casually.
Rajaratnam has pleaded not guilty to securities fraud and conspiracy to commit securities fraud. The Galleon founder, who has been free on $100 million bail since his October 2008 arrest, stood up briefly as his name was mentioned when jurors entered the room for opening statements.
Defense lawyer John Dowd told the jury "the evidence will show the government has it wrong. And the government has it wrong because it believed the word of unbelievable people."
He said the government "ignored the public record and failed to do its homework."
Streeter told jurors they would hear Rajaratnam on secretly recorded phone calls talking about insider deals and even revealing an effort to cover them up afterwards by disguising what was known about public companies.
The prosecutor said one of those calls was with fellow employees a day after he learned in October 2008 from a board member at Goldman Sachs that the firm was going to lose money for the first time in its history as a public company.
"I heard yesterday from somebody who's on the board of Goldman Sachs that they're going to lose $2 a share," Streeter said Rajaratnam told employees on the call.
The prosecutor said Wall Street had it "exactly wrong" at the time, expecting Goldman Sachs to earn a profit amidst the worst of the economic crisis.
Streeter said Rajaratnam saved millions of dollars by selling all his Goldman stock. A month earlier, he had earned close to $1 million when the same Goldman board member, Rajat Gupta, told him that Goldman had received an offer from Warren Buffett's Berkshire Hathaway to invest $5 billion in the banking giant, Streeter said.
Gupta has not been charged criminally but has been charged civilly by the Securities and Exchange Commission.
Streeter said the jury would hear from several of the 19 people who have pleaded guilty in the probe, which resulted in more than two dozen arrests. He said they would also view phone and trading records.