A sweeping insider trading case that shook the hedge fund world is finally set for trial, with onetime billionaire Raj Rajaratnam fighting to stay out of prison in a courtroom drama over corporate secrets, tapped telephones and friends-turned-government witnesses.
Jury selection in the case against the Galleon Group founder in New York starts on Tuesday. The trial, expected to last up to two months, comes as US authorities push on with other probes into stock trading in the $1.9-trillion hedge fund industry.
Rajaratnam is accused of making $45 million in illicit profits through tips from former friends and associates at the highest levels of corporate America. The Sri Lanka-bornhas vowed to clear his name at trial. Galleon managed $7 billion at its peak.
“All signs are pointing to a battle royal,” said Chicago securities attorney Andrew Stoltmann, who is not involved in the case. “Just by being a hedge fund manager he is a gambler by trade. The mentality is a little bit different from other defendants.”
At a hearing on Friday, prosecutors said they would play audio tapes of conversations between Rajaratnam and former Goldman Sachs director Rajat Gupta, as evidence to the jury that they conspired in 2008 to share confidential Goldman information and that Rajaratnam traded on it.
Rajaratnam, arrested in October 2009 and free on bail, faces up to 25 years in prison if convicted of conspiracy and securities fraud. Prosecutors have called it the biggest-ever probe of insider trading at hedge funds.
While Rajaratnam lost a key ruling that will allow jurors to hear audiotapes of his telephone conversations secretly recorded by the FBI, his lawyers argue the tapes prove nothing. His representatives have said repeatedly that “he intends to establish his innocence at trial before a jury of his fellow citizens.”
The allegations extend far beyond Rajaratnam. Besides him, 25 former traders, executives and lawyers have been charged with being part of two overlapping insider trading networks.
The trial is the biggest in the financial industry since two former Bear Stearns fund managers were accused of misleading investors over mortgage-linked securities as the housing market collapsed in 2007.