The Raj Watch: the Defense Wins One. Should We Care?
By David Stout | April 12, 2011 3:26 pm

Hedge fund maestro Raj Rajaratnam won a ruling on Tuesday in his bid to avoid conviction in what the press has been calling the biggest insider-trading case in years.

The biggest such case in years? Ho hum, says ones seasoned white collar defense lawyer, asserting that journalists have been wildly exaggerating how complex and interesting the case really is. More about that in a minute.

First, the ruling. U.S. Judge Richard J. Holwell, presiding over the trial in the Southern District of New York, decided that Geoffrey Canada, the educator and social activist who appeared in the much-praised documentary film “Waiting for ‘Superman,’” can testify as to the defendant’s character. Canada’s Harlem Children’s Zone has benefited from the generosity of Rajaratnam, founder of the Galleon Group LLC hedge fund.

“I will allow the character witness because the government itself has raised the issue of alleged greed by the defendant,” Holwell said before the jury came into the Manhattan courtroom on the second day of the defense’s case, according to a Reuters account.

John Dowd, the chief defense lawyer, had asked the judge on Monday if he could call Canada because prosecutor Jonathan Streeter told jurors way back at the trial’s March 9 opening that the case was about “greed and corruption.”

We would like to raise a question, confident as we do that the jurors will follow standard instructions and not contaminate themselves by reading press accounts of the case. What does Rajaratnam’s generosity have to do with the charges against him, which assert that he made some $63.8 million (the figure changes, as we noted recently) by illicitly trading on information not available to others?

Well, maybe the defense team needs to try anything. “I wouldn’t want to be Raj Rajaratnam’s lawyer right now,” writes Andrew Ross Sorkin of The New York Times. Sorkin’s point is that the prosecution has laid out a lot of damning evidence, including snippets like this one, from a tape-recorded phone call in which Rajaratnam says, “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.”

Sorkin also cites a call in which Rajaratnam explained that he bought a stock because he was sure it would go up. “We know because one of our guys is on the board,” Rajaratnam said.

“Why Mr. Rajaratnam decided to fight the case, with so many witnesses in taped conversation with him, is a mystery,” Sorkin writes. “I am left thinking he must have decided that he had nothing to lose and that if his lawyers could persuade just one juror, it would be worth going to trial. But I’m still glad I’m not his lawyer.”

And that is exactly the wrong view, asserts Solomon L. Wisenberg, the white collar defense lawyer we mentioned up top.  Dowd, Rajaratnam’s top lawyer, can’t lose, Wisenberg opines on the White Collar Crime Prof blog: “If Rajaratnam is found guilty, it’s no big deal, because everyone in the defense bar expects it. If Rajaratnam is acquitted, Dowd is a magician.”

“If the government loses this case, the prosecutors should rend their garments and put on sackcloth and ashes,” Wisenberg writes. “Really. Acquittal will only come through jury nullification or confusion.”

What’s more, declares Wisenberg, of Barnes &  Thornburg LLP, “The case is not complex, legally or factually. It isn’t even interesting, except for John Dowd’s Charles Laughton routine. Nor are the issues novel.”

“Contrary to popular myth, fueled by the press, insider trading is not notoriously difficult to prosecute,” Wisenberg writes. “It is notoriously easy to detect and prosecute. Most people caught at it plead guilty.” As have 19 of 26 defendants in the Rajaratnam case, he notes.

Charles Laughton? For our younger readers, Laughton, who died in 1962, was a British actor famed for playing Nero, Henry VIII and Captain William Bligh of “Mutiny on the Bounty” fame.

Anyhow, Wisenberg’s impressive resume includes his service as deputy independent counsel to Kenneth Starr, who investigated President Bill Clinton in connection with real estate dealings in Arkansas and, um, other matters. He also boasts extensive white collar defense experience. So we probably shouldn’t disagree with him.

But we will, up to a point. “Most people caught at it plead guilty,” he says of insider trading. But surely they’re not all caught, are they?

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