March 14, 2011 / 4:12 PM / 7 years ago

Affairs, tapes, bonus spill into Rajaratnam trial

NEW YORK (Reuters) - Love affairs, a mysterious “India Book” and an audio tape of a purported cover-up spilled into evidence at hedge fund founder Raj Rajaratnam’s high-profile insider trading trial on Monday.

Anil Kumar, a former McKinsey & Co director accused of leaking information in the Galleon hedge fund insider trading case, leaves the U.S. Federal Court in Manhattan January 7, 2010. REUTERS/Mike Segar

Sri Lankan-born Rajaratnam, on trial in New York on criminal charges of running a vast network of tipsters, was heard on an FBI phone tap discussing prospective trades and deals the prosecution says were part of the biggest insider trading case in decades.

“Keep conversations just personalized to the three of us ... you know, so that we just protect ourselves,” Rajaratnam is heard telling two associates on one call, discussing the potential acquisition of Spansion technology company. “Yeah, we just have an email trail right, that uh ... I brought it up and, you know, something like that.”

Rajaratnam’s lawyer denies there was any cover-up.

The recording was played in a Manhattan federal courtroom during the testimony of disgraced former McKinsey & Co partner Anil Kumar, who has pleaded guilty. Other excerpts of phone taps were played to the 12-member jury last Thursday in a trial that is expected to last two months.

“We have to keep radio silence on this. OK?” Rajaratnam tells ex-New Castle Funds LLC trader Danielle Chiesi on one call, and Chiesi responds, “Oh, Please. That is my pleasure.” Rajaratnam says, “not even to your little boyfriends you know?”

The government says they were talking about the upcoming October 2008 sale of Advanced Micro Devices Inc’s fabrication business.

Before the trial it had already been publicly disclosed that Chiesi had an affair with former IBM executive Bob Moffat, one of 26 executives, traders and lawyers caught up in the sweeping Galleon probe.

On Monday, the court heard from Kumar that Chiesi also had “an intimate relationship” with former Advanced Micro Devices Inc Chief Executive Hector Ruiz. Chiesi and Moffat are among 19 people who have pleaded guilty.

Galleon hedge fund founder Raj Rajaratnam exits Manhattan Federal Court in New York March 14, 2011. Love affairs, a mysterious "India Book" and an audio tape of a purported cover-up spilled into evidence at hedge fund founder Raj Rajaratnam's high-profile insider trading trial on Monday. REUTERS/Brendan McDermid

Ruiz has not been accused of any wrongdoing. His spokesman said any “suggestion that the relationship was intimate is untrue.”


Chiesi was heard on the recordings jauntily saying “Hey, Baby” and “Hi Babe” to Rajaratnam. At another point she says, “I’m glad that we talk on a secure line. I appreciate that.” Rajaratnam responds, “I never call you on my cell phone.”

On a call with Chiesi in September 2008, Rajaratnam refers to AMD stock saying, “I’m long 25 and I’m taking the pain but I’m, you know, I’m a warrior. They can’t kill me. October’s my month.”

Indian-born Kumar, 52, told jurors on Monday that he supplied confidential details to Rajaratnam about AMD’s 2006 purchase of graphics chipmaker ATI Technologies. He has yet to be cross-examined after spending a total of more than eight hours on the stand as a prosecution witness.

“He called me at home and he said, ‘I just wanted to thank you. That was fantastic, we are all cheering you at the office right now,’” Kumar testified. “That made me very nervous. I was worried if there was a lot of champagne flowing in the office.”

Kumar said Rajaratnam kept a book of trades that he called the “India Book,” but Kumar said he believed it was “fake” or “funny money.” He said the hedge fund manager paid him a $1 million “bonus” for tipping him about an acquisition by chip-maker AMD, a McKinsey client.

The prosecution wants to show the jury that Rajaratnam received inside tips supplied by high-ranking friends in corporate America. It is the biggest Wall Street insider trading case since speculator Ivan Boesky and junk bond financier Michael Milken were prosecuted in the mid-1980s.

Kumar said he “nearly fell off my chair” when Rajaratnam paid him $1 million for information on AMD’s $5.4 billion buyout of ATI. The deal was announced in July 2006 and completed three months later. Rajaratnam made more than $20 million on his trades, according to the government.

The case has embarrassed McKinsey, an elite management consultancy. At its annual partner meeting in Washington this week, global managing director Dominic Barton is expected to speak with partners about the trial and the separate civil charges against former McKinsey top executive Rajat Gupta, the Financial Times reported. McKinsey itself has not been charged with any wrongdoing.

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

Editing by Dave Zimmerman, Bernard Orr and Steve Orlofsky

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