Raj Rajaratnam, the billionaire hedge fund manager, smiled weakly as an FBI agent replayed one of his phone calls to a Manhattan courtroom.
Rajaratnam looked at the jury, then stared at a screen where every word of the conversation was printed in giant letters.
He folded his arms and watched the FBI reveal how it taped 3,900 of his phone calls and text messages in the biggest corporate wiretapping operation in American history.
The 53-year-old Sri Lankan- born investor is at the centre of America’s most wide-ranging investigation into hedge fund insider trading. The co-founder of Galleon Group in New York is accused of raking in more than $45m (£28m) by bribing management consultants and corporate insiders.
Information he is said to have gleaned includes Intel’s quarterly profits; details of a secret microchip to be released by Intel’s rival, AMD; and, perhaps most explosive of all, advance notice of the US government’s Goldman Sachs bailout, allegedly leaked by a Goldman board member.
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Prosecutors indicted 26 people connected to Rajaratnam, of whom 19 have pleaded guilty to insider trading or related crimes. Last week Rajat Gupta — who ran McKinsey, the management consultancy, for almost a decade until 2003 and is a former board member of Goldman Sachs and Procter & Gamble — was accused of leaking information to Rajaratnam.
The case also has big implications for the Securities and Exchange Commission (SEC), the watchdog, which first contacted the FBI and is now rebranding itself as a tough enforcer after its failure to halt the 2008 financial meltdown. As the 10-year SEC veteran Arthur Laby said, the commission is eager to show a recession-hit, disillusioned US public that it can take on Wall Street and win. “The SEC wants the FBI to bring more criminal cases against people like Rajaratnam,” he said.
By Thursday morning, after spending tens of millions of dollars bringing the case to trial, prosecutors were ready to introduce their prize asset — the wiretapped voice of Rajaratnam as he allegedly bribed his way to the heart of the US financial system.
The jury sat upright and strained to hear his conversations with Rajiv Goel, a close friend and a former Intel executive who has pleaded guilty to fraud. Rajaratnam, according to prosecutors, bribed his way into Intel’s financial secrets by paying hundreds of thousands of dollars to help Goel and his family.
In one call on October 7, 2008, as the US economy was reeling from the collapse of Lehman Brothers, the pair allegedly discussed insider information involving People Support, the customer management company.
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In it, Rajaratnam offers to buy People Support stock for Goel, adding that he knows of a lucrative deal involving the company because “one of our guys is on the board”.
He was unmoved when his former close friend, Anil Kumar, took the stand on Thursday afternoon.
Kumar, a disgraced former partner at McKinsey, agreed that he had betrayed the consultancy by tipping off Rajaratnam about confidential discussions with clients.
One such tip-off involved AMD, the troubled microchip maker, which was planning an offensive against Intel with the launch of its Opteron chip. Kumar admitted to the jury:
“I was proud of the strategic moves of AMD and, sadly, I violated everything in sharing it with Raj.”
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It was Kumar’s evidence about his housekeeper, Manju Das, that most captured the jury’s attention.
Rajaratnam allegedly hid his bribes to Kumar by paying the money from a Swiss bank account into an American trading account held in Das’s name.
To cover their tracks, Rajaratnam told Kumar to invent a letter in Das’s name, granting Kumar executive powers over her trading account. Kumar explained that Das was initially brought from India to Anerica to care for his sick child and was then unwittingly used to front Rajaratnam’s insider trading schemes.