Hedge fund tycoon Raj Rajaratnam made $4 million in a day by doubling his stake in Hilton thanks to a tip from an Indian origin Moody's analyst, federal prosecutors have charged.
The Sri Lankan American co-founder of the Galleon Group bought 400,000 additional shares of Hilton July 3, 2007, before the the hotel chain announced a takeover by private-equity firm Blackstone Group, a New York court was told Monday.
Previously, the hedge fund firm owned 475,700 Hilton shares.
On the stand Monday in the biggest insider trading trial was witness Margaret Holloway, the then boss of former Moody's analyst Deep Shah, who was declared a fugitive two years ago and was recently located in Mumbai.
Shah is accused of tipping off ex-Intel executive Roomy Khan about the Hilton takeover. Khan allegedly passed the information along to Rajaratnam.
Prosecutors also alleged that Rajaratnam learned a day before the public that broadband provider Clearwire was going to land a $3.2 billion investment from a former Indian American Clearwire board member, Rajiv Goel.
Prosecutors played several wiretaps in which Goel appears to give Rajaratnam inside information about the investment.
Goel, who was also working for Galleon at the time, pleaded guilty to his role in the scheme and is now reportedly a key cooperating witness for the government.
Rajaratnam is accused of making $45 million in what the government calls the largest insider-trading scheme in history, which has brought guilty pleas from more than 15 alleged associates and tipsters.
Goel allegedly leaked Rajaratnam confidential information related to the Clearwire deal in a series of phone calls. In one transcript, Goel says: "Yesterday our board approved this deal."
Taking the stand, Sriram Viswanathan, yet another Indian American executive for Intel, said in late 2007 Intel began to have discussions with Clearwire Corp. about creating a 4G network to give high-speed internet access to mobile phones.
Viswanathan said Goel, who held a position at Intel's Treasury Group, would have had access to the proposed deal, code named "Project Rain", and that Goel likely did "a lot of the back-end negotiating about how to go about maximising the deal for Intel".
A May 7, 2008, press release announced that Intel joined with Google, Comcast, Time Warner Cable and Bright House on a $3.2 billion investment in Clearwire, which was developing its "next generation" of 4G broadband internet with Sprint.
Defence attorneys for Rajaratnam maintained that the Galleon founder learned of the allegedly privileged information from news articles and analyst reports.
When questioned on these public sources of information, Viswanathan drew a clear distinction between press speculation and formal announcements.
"It is a fact that there was a lot of speculation about the possibility," Viswanathan said.
Defence attorney Terence Lynam replied that speculation or not, signs pointed to a deal, and the market reacted.
In December 2007, Intel executive Arvind Sodhani announced in a press release that he would resign from the Clearwire board of directors to avoid a conflict of interest.
Lynam said various news outlets speculated on the meaning of his resignation in January 2008, causing a 25 percent spike in Clearwire's stock.